FINANCIAL MANAGEMENT REVIEW STATEMENTS. Letter from the Chairman & the CEO earnings expectations Statements Notes...

Transcription

1 ANNUAL REPORT 2018

2 MANAGEMENT REVIEW FINANCIAL STATEMENTS CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 2 Letter from the Chairman & the CEO earnings expectations HIGHLIGHTS Strategic priorities... 6 Our brands... 8 Regional priorities... 9 Golden triangle Financial highlights Key figures REGIONAL REVIEW Western Europe Asia Eastern Europe OUR STRATEGY Beer trends Business model SAIL CONSOLIDATED FINANCIAL STATEMENTS Statements...57 Notes...61 PARENT COMPANY FINANCIAL STATEMENTS Statements Notes REPORTS Management statement Auditor s report GOVERNANCE Risk management Corporate governance Remuneration Supervisory Board Executive Committee Share information Forward-looking statements... Carlsberg Group GROW IN ASIA Front page: A strategic growth priority is to continue to grow in Asia, where a key growth driver is continued premiumisation in China through growing sales of our international brands Tuborg, Carlsberg and 1664 Blanc. Supported by our targeted expansion into big cities outside our core western China provinces, our international brand portfolio in China grew by 13% in 2018.

3 Letter from the Chairman & the CEO LETTER FROM THE CHAIRMAN & THE CEO SHIFTING GEARS TO GROWTH CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 3 Our strong performance in 2018 will result in a considerable cash return to shareholders, with the aggregated value of dividends and share buy-back for the year totalling DKK 7.2bn. Flemming Besenbacher Chairman of the Supervisory Board 2018 was a good year for the Carlsberg Group, with strong net revenue, operating profit and cash flow. The benefits from Funding the Journey were partly reinvested to support our strategic priorities. As a result, we are pleased to report improved financial, strategic and organisational health of our business. FINANCIAL HEALTH: A YEAR OF STRONG DELIVERY With respect to our financial health, the first results of the SAIL 22 growth priorities manifested themselves in organic net revenue growth of 6.5%, driven by solid price/mix of +2% and volume growth of 4.8%, although the latter was helped by the warm summer in several European markets and the timing of the festive season in Asia. Funding the Journey, which was a three-year profit improvement programme initiated in November 2015, came to an end in It has been very successful, delivering significantly more benefits than initially anticipated, and allowing us to invest more than DKK 1bn in our SAIL 22 priorities. Going forward, the mindset of the programme will prevail. Now embedded in operations across the Group, the focus on efficiency, costs and cash will remain an important driver of future value creation. During the year, we adjusted our earnings expectations twice. In August, we increased the full-year guidance from mid- to high-singledigit percentage organic growth, and in October we further increased expectations to 10-11% organic growth in operating profit. Thanks to the higher benefits from Funding the Journey, good growth of our SAIL 22 priorities and higher volumes due to the aforementioned warm weather, operating profit grew organically by 11% and the operating margin improved by 30bp to 14.9%. Net profit was DKK 5,309m and adjusted EPS was DKK 35.2, up 9% on The earnings delivery was an important driver of the ROIC improvement of 120bp and the free cash flow of DKK 6.2bn. The free cash flow was also supported by a solid contribution from trade working capital of DKK 1.9bn. During the year, we engaged in several M&A transactions, increasing our stakes in the Cambodian and Greek businesses to 75% and 100% respectively, and acquiring a stake in the controlling shareholder of the Portuguese business, bringing our total direct and indirect holding in Super Bock Group to 60%. Despite these investments, the net interest-bearing debt/ebitda ratio at year-end was 1.29x, still well below our target of below 2.0x. On the back of the strong results, the Supervisory Board will propose to the Annual General Meeting that the payout ratio of around 50% be maintained, resulting in a 13% increase in the ordinary dividend to DKK 18.0 per share. In addition, the Board has initiated a DKK 4.5bn share buy-back programme, leading to cash returns to shareholders of DKK 7.2bn for the year. You can read more about this on page 34. STRATEGIC HEALTH: PROGRESS ON SAIL 22 Our strategic health also improved during Our strategy, SAIL 22, which was launched in March 2016, is now well established and understood across the Group. Among a number of positive achievements, we would like to highlight the growth rates of our craft & speciality portfolio (+26%) and alcoholfree brews in Western Europe (+33%). Our international brands and local power brands had a very good year, and in Asia we grew further in India and China, the latter supported by our big city approach. You can read about our SAIL 22 initiatives in 2018 on pages Part of our strategy is our ambitious sustainability programme Together Towards ZERO, based on our purpose of brewing for a better today and tomorrow. We are working hard to meet the programme s targets within carbon, water, responsible drinking and health & safety, and our actions and achievements in 2018 are outlined on pages and

4 CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 4 discussed in more detail in our Sustainability Report. In September, we were excited to launch a series of ground-breaking sustainability innovations for the Carlsberg brand, including the new Snap Pack, which, when fully rolled out, will reduce plastic usage by up to 76%, equivalent to 1,200 tonnes of plastic or 60 million plastic bags per year. Less plastic means less reliance on fossil fuel-based packaging, thereby reducing carbon emissions. EXCEL IN EXECUTION Chairman Flemming Besenbacher (left) and CEO Cees t Hart in front of a showcase of our DraughtMaster system. This patented oneway 20-litre PET keg system with no added CO2 and a 31-day shelf life enhances the freshness and beer experience for consumers and allows outlets to have greater on-tap variety and a more user-friendly draught beer installation. ORGANISATIONAL HEALTH: A WINNING ORGANISATION During the past three years, there have been several changes in the top-200 management team. Today, we have a strong group of leaders across the Group s functions and markets. In 2018, we also welcomed our head of Group Commercial, Jessica Spence, to the Executive Committee. In many areas, such as commercial, finance, supply chain, digital and data we further professionalised our ways of working. In digital, we accelerated our digital agenda with the establishment of a digital transformation team. We also changed the incentive structure to achieve better alignment with our objectives, Overall, our winning culture has become much deeper embedded across the Group, and our people are characterised by a winning spirit. CHANGES TO THE SUPERVISORY BOARD Lars Rebien Sørensen, Donna Cordner and Nina Smith have notified the Supervisory Board that they are not standing for re-election at the Annual General Meeting in In addition, Nancy Cruickshank stepped down from the Board in May to join the Group as Senior Vice President Digital Business Transformation. The Supervisory Board will propose the election of Lars Fruergaard Jørgensen, Domitille Doat-Le Bigot, Lilian Fossum Biner and Majken Schultz as new members. THANK YOU We would like to thank our shareholders for their support. We would also like to express our appreciation to everyone in the Carlsberg Group for their cooperation, dedication and enthusiasm in bringing SAIL 22 to life and securing the successful delivery of Funding the Journey. Finally, we would like to acknowledge the excellent relationships that we have with our customers and suppliers, and to state our gratitude to our consumers around the world. Flemming Besenbacher Chairman Cees t Hart CEO

5 2019 Earnings expectations EXPECTATIONS 2019 EARNINGS EXPECTATIONS CARLSBERG GROUP ANNUAL REPORT EARNINGS EXPECTATIONS 5 In 2019, we will continue to execute on our SAIL 22 strategic priorities in support of top- and bottom-line growth. Driving growth of craft & speciality and alcohol-free brews and continuing volume and value growth in Asia will remain our key growth accelerators. Additionally, we will support and further develop our core beer portfolio, which includes our local power brands and our international brands Tuborg and Carlsberg. For the Carlsberg brand in particular, an important priority for 2019 is the roll-out of the new brand design and packaging innovations. During the course of the three-year profit improvement programme Funding the Journey its focus on efficiencies, costs and cash has become an integral part of our dayto-day operations, and this will remain an important driver of future value creation. Consequently, we will continue to enforce strict cash and cost discipline to optimise processes and drive efficiencies throughout the supply chain, and to streamline SG&A costs through operating cost management (OCM). Our regional priorities will be to increase net revenue and the operating margin in Western Europe, drive growth in Asia through premiumisation, and strengthen market leadership in Eastern Europe. Based on these priorities, the Group expects to deliver: Mid-single-digit percentage organic growth in operating profit. Based on the spot rates as at 5 February, we assume a DKK translation impact of around zero for Other relevant assumptions are as follows: Financial expenses, excluding currency losses or gains, are expected to be DKK m. The effective tax rate is expected to be below 28%. Capital expenditure at constant currencies is expected to be around DKK 4.5bn. FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements. Any such statements are subject to risks and uncertainties that could cause the Group s actual results to differ materially from the results discussed in such forward-looking statements. Accordingly, forward-looking statements should not be relied on as prediction of the actual results. Please see page 55 for the full forward-looking statement disclaimer. CARLSBERG In 2018, we unveiled a new Carlsberg brand design alongside packaging innovations that will reduce plastic waste and increase recyclability. The innovations included the pioneering Snap Pack solution, a new coating on refillable glass bottles to extend their lifespan, new caps that remove oxygen to make the beer taste fresher for longer, and a new Cradle to Cradle Certified green ink to improve recyclability. REVITALISE CORE BEER

6 CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS STRATEGIC PRIORITIES 6 SAIL'22 DELIVERING TOP-LINE GROWTH... Our 2018 results served as proof points for our strategic choices. Funding the Journey delivered above initial expectations and our investments in SAIL 22 supported organic top-line growth of 6.5%. CONTINUED GROWTH OF CRAFT & SPECIALITY VOLUME GROWTH OF 26% Our craft & speciality portfolio had another year of strong growth, supported by 1664 Blanc, which grew by 49%, and Grimbergen, which grew by 14%. GROW CRAFT & SPECIALITY STRONG PROGRESS OF ALCOHOL-FREE BREWS PREMIUMISING IN ASIA VOLUME GROWTH OF 33% Our premiumisation efforts in Asia contributed to a strong price/mix of 4%. Our international brands continued their strong performance, growing volumes by 14%. India and China delivered particularly strong results. An important initiative in 2018 was the successful expansion of our international portfolio into big cities in China. Our alcohol-free brews delivered strong results in Western Europe, growing by 33%. Throughout the region, we successfully supported alcoholfree line extensions of our local power brands. In Russia, Baltika 0 grew by 35%. We launched Birell, a global stand-alone alcohol-free beer. ACTIVELY SHAPE ALCOHOL-FREE BREWS GROW IN ASIA STRONG DELIVERY OF FUNDING THE JOURNEY Funding the Journey as a specific programme came to an end in 2018, delivering around DKK 3bn, well above initial expectations. More than DKK 1bn has been reinvested in support of our SAIL 22 priorities. The focus on efficiencies, costs and cash will continue. FUNDING THE JOURNEY READ MORE ABOUT OUR STRATEGY AND KPIs ON PAGES 25-34

7 STRATEGIC PRIORITIES... AND PROGRESS TOWARDS ZERO CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS In 2018, we continued to work hard to deliver on our ambitious sustainability programme, Together Towards ZERO, with its clear priorities within the areas of carbon, water, responsible drinking and health & safety. 7 ZERO CARBON FOOTPRINT ZERO WATER WASTE ZERO IRRESPONSIBLE DRINKING ZERO ACCIDENTS CULTURE 20% 9% 96% 35% reduction in relative carbon emissions since 2015, using 46% renewable electricity in Since 2015, our coal usage has been reduced by 78%. improvement in water efficiency since our 2015 baseline. We aim to halve water usage at our breweries by With steady performance in 2018, we still have a long way to go to achieve this target. of our products now carry responsible drinking messages advising consumers not to drinkdrive and not to drink when underage or pregnant. In Western Europe, we included information on ingredients and nutritional values per 100 ml on 86% of products. reduction in lost-time accident rate since In 2018, we rolled out our Life Saving Rules programme, focusing on the specific areas where we have learned that people s lives can be endangered if rules are not followed. READ MORE ON PAGES AND IN OUR SUSTAINABILITY REPORT

8 CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS OUR BRANDS A COMPLETE AND ATTRACTIVE PORTFOLIO 10% volume growth in % volume growth in 2018 Our core beer portfolio spans the international beer brands Tuborg and Carlsberg and local power brands. Alongside our core beer, we have great craft & speciality beers and alcohol-free brews. CORE BEER GROWING CATEGORIES 14% volume growth in % volume growth in % 7% of own beer volumes of own beer volumes 87% 13% of own beer net revenue INTERNATIONAL BRANDS of own beer net revenue LOCAL POWER BRANDS CRAFT & SPECIALITY ALCOHOL-FREE BREWS SOLID PROGRESS OF CORE BEER STRONG RESULTS FOR OUR GROWING CATEGORIES Mainstream lager beer enjoys high penetration and frequency in most markets. Core beer is the backbone of our business, representing our largest volume and profit pool. Our core beer portfolio consists of strong local power brands in combination with our international brands Tuborg and Carlsberg. Improving the brand fundamentals within core beer is an important priority of SAIL 22, and in 2018 we revealed a series of betterments and a new look & feel for the Carlsberg brand. Important priorities of SAIL 22 are to strengthen our position within craft & speciality and alcohol-free brews. The popularity of these categories is on the rise in many markets, driven by consumers desire for premium brands with varied tastes and styles as well as the interest in healthier lifestyles. Both categories offer superior margin opportunities. In 2018, we launched Birell our first stand-alone alcohol-free brew in Poland and Bulgaria. REVITALISE CORE BEER 8 WIN IN GROWING CATEGORIES

9 REGIONAL PRIORITIES STRONG RESULTS ACROSS OUR REGIONS CARLSBERG GROUP ANNUAL REPORT 2018 CHAPTER +11.3% Organic operating profit growth 000 The Carlsberg Group has a well-diversified geographic footprint with strong no. 1 or 2 positions in 25 markets across Western Europe, Asia and Eastern Europe. Around 75% of volumes are sold in these markets and no market accounts for more than 16% of Group volumes. +7.0% Organic operating profit growth +15.8% Organic operating profit growth WESTERN EUROPE IMPROVE MARGINS AND GROW OPERATING PROFIT ORGANICALLY ASIA ACCELERATE ORGANIC GROWTH THROUGH PREMIUMISATION EASTERN EUROPE REBALANCE THE GOLDEN TRIANGLE TOWARDS TOP-LINE GROWTH Operating Organic growth +60bp +13.3% +9.3% margin expansion in net revenue Organic growth in net revenue Western Europe delivered organic growth in net revenue of 3.0% and in operating profit of 7.0%. Reported operating margin was 15.0% (+60bp). These results were driven by good progress on our SAIL 22 priorities, including craft & speciality and alcohol-free brews, value management and Funding the Journey, and by the warm summer in some markets. Growing in Asia is a key SAIL 22 priority on which we delivered strongly in Organic net revenue growth was driven by strong volume growth of 8.6% and price/mix of +4%. Our international brands Tuborg, Carlsberg and 1664 Blanc were significant contributors, but we also saw good results for our local power brands. Operating profit grew organically by 15.8%. In 2018, Eastern Europe rebalanced the Golden Triangle towards volume and top-line. Organic net revenue growth was driven by volume growth of 3.1% and price/mix of +6%. In Russia, price/mix was positive, driven by price increases. The other markets in the region achieved solid revenue and earnings growth. 47% Share of Group volume 50% Share of Group operating profit 29% Share of Group volume 29% Share of Group operating profit 24% Share of Group volume 21% Share of Group operating profit

10 GOLDEN TRIANGLE WELL-BALANCED GOLDEN TRIANGLE CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS 10 The Golden Triangle is an important KPI in our performance management at Group, regional and market level. By focusing on our SAIL 22 priorities, we aim to optimise the balance between market share/volumes, gross profit after logistics (GPaL) margin, operating profit and cash generation, thereby creating sustainable value growth. VOLUMES Total volumes grew organically by 4.8%. Volumes in Asia were up organically by 8.6%, with strong results achieved in most markets in the region. In Western Europe, the organic volume growth of 3.6% was impressive, supported by warm weather during the summer. In Eastern Europe, all markets contributed to the organic growth of 3.1%. GROSS PROFIT AFTER LOGISTICS MARGIN The gross profit after logistics (GPaL) margin developed favourably in 2018, growing organically by 100bp. The improvement was the result of the positive price/mix and supply chain efficiencies. All three regions saw positive development of their GPaL margins. OPERATING PROFIT Operating profit grew organically by 11% as a result of volume growth, positive price/mix and the benefits from Funding the Journey was the last year of Funding the Journey, which has delivered benefits of around DKK 3bn. The sharp focus on efficiencies, costs and cash has been embedded in our daily business processes and systems, and will continue in the years to come. FREE CASH FLOW Free cash flow amounted to DKK 6.2bn, positively impacted by strict financial discipline and the change in trade working capital of DKK +1.9bn. During the year, we increased our ownership share in a number of subsidiaries and associates, with net investments amounting to a total of around DKK 2.8bn.

11 FINANCIAL HIGHLIGHTS DELIVERING ON OUR PRIORITIES CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS 11 Net revenue¹ (DKKbn) Operating profit (DKKbn) Net profit (DKKbn) ROIC (%) NIBD/EBITDA (x) Dividend/share (DKK) bn bn bn 0 Incl. goodwill 8.1% Excl. goodwill x Net revenue grew organically by 6.5% as a result of volume growth of 4.8% and price/mix of 2%. Asia and Eastern Europe contributed positively to both volume and price/mix, while in Western Europe price/mix was negatively impacted by country mix. In reported terms, net revenue grew by 3.0%, impacted by adverse currencies. Operating profit grew organically by 11.0%, with all three regions delivering very solid results. Operating expenses were up 4% organically due to marketing investments. Excluding marketing, they declined by 1% due to Funding the Journey benefits. Reported operating profit of DKK 9.3bn was up 5.1% due to currencies. The operating margin was 14.9% (+30bp). More details on operating profit are provided in section 1 of the consolidated financial statements. Net profit attributable to shareholders in Carlsberg A/S was up significantly on In 2017, net profit was impacted by a DKK 4.8bn impairment. Adjusted for special items after tax, net profit increased by 9% to DKK 5.4bn. The positive development was the result of higher operating profit, lower financial expenses and a lower effective tax rate compared with Return on invested capital (ROIC) increased by 120bp to 8.1%, impacted by lower invested capital, improved profitability and a lower effective tax rate. ROIC excluding goodwill increased by 520bp to 20.9%, with improvements achieved in all three regions. More details on ROIC are provided in section 2.1 of the consolidated financial statements. Despite a higher dividend payout in the year and increased ownership of subsidiaries and associates, net interest-bearing debt (NIBD) was reduced further in NIBD/EBITDA was 1.29x, comfortably meeting our target of below 2.0x. We have thus delivered on all our capital allocation priorities, as explained on page 34. The Supervisory Board will propose to the AGM a dividend of DKK This equals a payout ratio of 51%, in line with our dividend policy of an adjusted payout ratio of around 50%. The proposed dividend represents an increase of 13% on In addition, the Supervisory Board has announced a DKK 4.5bn share buy-back programme (see page 34). Find more details on NIBD, capital structure, dividends and share buy-back in section 4 of the consolidated financial statements. ¹ Net revenue restated for 2017.

12 CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS 12 OTHER KEY FINANCIALS Net special items (DKKbn) Net financial items (DKKbn) Effective tax rate (%) TWC/net revenue (%) Cash flow (DKKbn) NIBD (DKKbn) m m % % bn bn Net special items of DKK -88m were primarily impacted by measures related to Funding the Journey in Western Europe. The significantly negative special items in 2017 were the result of an impairment of the Baltika brand in Russia. More details on special items are provided in section 3.1 of the consolidated financial statements. Net financial items continued to decline and amounted to DKK -722m (2017: DKK -788m), positively impacted by the lower NIBD. Excluding foreign exchange gains, net, they amounted to DKK -758m, in line with our assumption at the beginning of the year of around DKK -800m. More details on net financial items are provided in section 4.1 of the consolidated financial statements. The effective tax rate (ETR) of 28% was significantly down on 2017, when it was impacted by the impairment of the Baltika brand in Russia. Adjusted for this impairment, the effective tax rate (adj. ETR) in 2017 was 29%. At the beginning of the year, we expected an effective tax rate for 2018 of below 29%. More details on tax are provided in section 6 of the consolidated financial statements and in the section on economic value and total tax contribution in the 2018 Sustainability Report. The change in trade working capital was DKK +1,908m and average trade working capital to net revenue declined further to -16.0% compared to -14.0% for The change was positively impacted by the change in trade payables, which was the result of higher volumes, our disciplined cash focus, country mix and the acquisition of Cambrew. More details on working capital are provided in section 1.4 of the consolidated financial statements. Operating cash flow was 12.0bn, up DKK 213m. The free cash flow of DKK 6.2bn was positively impacted by the strong trade working capital. The decline versus 2017 was primarily due to the increased ownership in Cambrew and Super Bock. CapEx was DKK 4.0bn, initially expected to be around DKK 4.5bn, and in October adjusted to DKK bn. More details on the free cash flow are provided in sections 1.4 and 5.2 of the consolidated financial statements. Net interest-bearing debt (NIBD) declined by DKK 2.3bn. Since 2015, NIBD has declined by DKK 13.6bn. 70% of the gross financial debt was long term. 96% of the net financial debt was denominated in EUR and DKK (after swaps). The duration was 4.2 years, within our target of 2-5 years. More details on financing and capital structure are provided in section 4 of the consolidated financial statements.

13 KEY FIGURES CARLSBERG GROUP ANNUAL REPORT HIGHLIGHTS 13 FIVE-YEAR SUMMARY Volumes (million hl)¹ Beer Other beverages DKK million Income statement Net revenue¹ 62,503 60,655 62,614 65,354 64,506 Gross profit¹ 31,220 30,208 31,419 31,925 31,781 Operating profit before amortisation, depreciation and impairment losses 13,420 13,583 13,006 13,213 13,338 Operating profit before special items 9,329 8,876 8,245 8,457 9,230 Special items, net -88-4, ,659-1,353 Financial items, net ,247-1,531-1,191 Profit before tax 8,519 3,523 7,249-1,733 6,686 Income tax -2,386-1,458-2, ,748 Consolidated profit 6,133 2,065 4,857-2,582 4,938 Attributable to Non-controlling interests Shareholders in Carlsberg A/S (net profit) 5,309 1,259 4,486-2,926 4,414 Shareholders in Carlsberg A/S, adjusted² 5,359 4,925 3,881 4,292 5,496 Statement of financial position Total assets 117, , , , ,458 Invested capital 82,721 84,488 96,089 94, ,866 Invested capital excl. goodwill 31,792 33,991 43,225 44,680 56,319 Interest-bearing debt, net 17,313 19,638 25,503 30,945 36,567 Equity, shareholders in Carlsberg A/S 45,302 46,930 50,811 43,489 52,437 Statement of cash flows Cash flow from operating activities 12,047 11,834 9,329 10,140 7,405 Cash flow from investing activities -5,891-3, ,618-6,735 Free cash flow 6,156 8,680 8,616 7, ¹ Comparative figures for 2017 have been restated because of the change in accounting policies arising from the implementation of IFRS 15, the change in classification of certain central costs and the change in definition of volumes, all as of 1 January Investments Acquisition and disposal of property, plant and equipment and intangible assets, net -3,773-3,868-3,596-2,922-5,647 Acquisition and disposal of subsidiaries , ,681 Financial ratios Gross margin¹ % Operating margin¹ % Return on invested capital (ROIC) % ROIC excl. goodwill % Effective tax rate for the year % Equity ratio % Debt/equity ratio (financial gearing) x NIBD/operating profit before depreciation, amortisation and impairment losses x Interest cover x Stock market ratios Earnings per share (EPS) DKK Earnings per share, adjusted (EPS-A)² DKK Cash flow from operating activities per share (CFPS) DKK Free cash flow per share (FCFPS) DKK Dividend per share (proposed) DKK Payout ratio % nm 31 Payout ratio, adjusted² % Share price (B shares) DKK Market capitalisation DKKm 104, ,116 92,896 93,977 74,525 Number of shares (year-end, excl. treasury shares) 1, , , , , ,538 Number of shares (average, excl. treasury shares) 1, , , , , ,535 ² Adjusted for special items after tax.

14 Regional review WESTERN EUROPE CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 14 IMPROVED MARGIN AND GROWING PROFIT Western Europe strengthened margins and grew operating profit. The results were driven by Funding the Journey, good progress on our SAIL 22 priorities and the very good summer. Western Europe is our largest region, accounting for approximately half of our operating profit. We are the second largest brewer in the region, with a particularly strong presence in the central and northern parts, where we hold no. 1 and 2 positions in several markets. In several markets, we are in competition with the large global players, although in the Nordic markets we are mainly competing against local or regional players. Our Western Europe region also includes our global export and licence business. KEY PRIORITIES IN 2018 The main focus in 2018 was to improve margins and grow operating profit organically. Key to achieving these objectives was good execution of Funding the Journey, including operating cost management and delivery of supply chain efficiencies. Additionally, as 2018 was the third year of SAIL 22, we also had the objective in Western Europe of delivering organic top-line growth. This was successfully achieved through a variety of levers, including value management, top-line growth of local power brands, acceleration of craft & speciality (such as Grimbergen, 1664 Blanc, Brooklyn and authentic local craft brands), growth of the alcohol-free category and continuation of the roll-out of DraughtMaster. In 2018, we acquired the remaining 49% of Olympic Brewery in Greece and acquired 28.5% of the shares in Viacer, the holding company that controls Super Bock Group in Portugal. Viacer continues to be controlled by our partner and, consequently, Super Bock Group will remain an associated company. Following that transaction, the Carlsberg Group s direct and indirect ownership in Super Bock Group is 60%. REGIONAL RESULTS Western Europe delivered strong results in 2018, partly supported by the warm summer in the northern part of the region, especially in Q3. +17% PIRINSKO VOLUME GROWTH Pirinsko is our local power brand in Bulgaria and holds a market-leading position. Based on our demand space segmentation and the global health and wellness trend, we relaunched the unpasteurised sub-brand Pirinsko Young Brew in 2017 with the aim of strengthening its position as a natural and less processed brew to meet the demands of young adult consumers. The relaunch has proved very successful, supporting the brand s volume growth in REVITALISE CORE BEER

15 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 15 Net revenue grew organically by 3.0% as a result of 3.6% organic total volume growth and -1% price/mix. Reported net revenue grew by 1.2% due to the divestment of the German wholesaler Nordic Getränke in April 2017 and a negative currency impact. Price/mix was positive in the majority of our Western European markets, supported by successful premiumisation efforts and some price increases, partly countered by the higher growth of non-beer products. At regional level, the positive price/mix was more than offset by country mix due to growth in licence markets, such as Turkey, and loss of volumes in highrevenue export markets in the Middle East. Organic operating profit grew by 7.0%, and the operating margin improved by 60bp to 15.0%. The earnings progress was driven by volume growth, value management, premiumisation, Funding the Journey benefits and lower depreciation. The organic operating profit growth in H2 was 6.3%, and the operating margin declined by 10bp year-on-year for the half-year due to higher investments in SAIL 22 priorities such as craft & speciality, alcohol-free brews and the DraughtMaster roll-out. Total volumes increased organically by 3.6% and beer volumes by 2.9%, with a significant improvement in H2 thanks to the warm weather in Q3 after a difficult start to the year. Non-beer volumes grew by 5.9% due to good performance in the Nordics. Reported volumes grew by 3.0%, with a small net acquisition impact from the divestment of Nordic Getränke in We estimate that our regional market share grew slightly. PERFORMANCE BY MARKET THE NORDICS The Nordic businesses all benefited from the extraordinarily warm weather in Q3, which positively impacted volumes, net revenue and earnings. Total volumes grew organically by 6%. Our total volumes in Denmark grew in line with a slightly growing beer market. We saw good Change Change Volume (million hl) 2017 Organic Acq., net FX 2018 Reported Beer % -0.2% % Other beverages % -2.0% % Total volume % -0.6% % DKK million Net revenue 35, % -0.7% -1.1% 36, % Operating profit before special items 5, % 0.2% -1.7% 5, % Operating margin (%) bp performance of the Carlsberg brand as well as Tuborg Classic, Grimbergen, 1664 Blanc and alcohol-free brews such as Carlsberg Nordic, whereas Tuborg Green declined due to price increases on large-pack formats. As a result, price/mix improved by 5%. The non-beer business delivered strong growth, supported by the warm summer. Total volume¹ (m hl) Net revenue¹ (DKKbn) Operating profit (DKKbn) Operating margin¹ (%) ¹ Volume and net revenue restated for 2017.

16 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 16 In Norway, we saw continued good business performance. Our volumes grew slightly, and price/mix strengthened, supported by growth of premium brands such as Frydenlund and 1664 Blanc. Within alcohol-free brews, we saw good traction for Munkholm and the alcohol-free variants of 1664 Blanc and Somersby. The new Snap Pack packaging was introduced for the Carlsberg brand in Q4. In Sweden, total volumes grew, driven by strong non-beer volume growth, while beer volumes declined slightly due to the loss of distribution rights for third-party brands. Our own beer brands, such as Eriksberg, Carlsberg and 1664 Blanc, achieved good volume growth Our markets in Western Europe Country Consumption characteristics Per capita beer consumption (litres) and grew market share. Within alcohol-free brews, the Carlsberg brand continued to drive category growth and expanded its marketleading position. In Finland, the beer market declined following a regulatory change that increased the ABV level permitted in beverages sold in the regular off-trade, thereby allowing the sale of spiritbased drinks. Our total volume growth was strong, driven by relisting at a major retailer in Q1 for the winter campaign and growth of non-beer products. Sinebrychoff, our Finnish subsidiary, will celebrate its 200th anniversary in On-trade share of market, approx. (%) Market position (no.) Our position Market share (%) Our operations Breweries¹ Denmark Sweden Norway Finland France Switzerland UK Poland Germany² Italy The Baltics South East Europe Portugal ¹ Breweries with capacity above 100,000 hl. ² Northern Germany. FRANCE In a growing French market, our volumes grew by 5%. Price/mix improved as a result of continued growth of our premium brands. Our craft & speciality and alcohol-free brews performed well, while the Kronenbourg brand in the mainstream segment declined. The good overall performance was achieved despite some supply issues due to the French national rail strike in Q2. SWITZERLAND The positive trend in our Swiss business continued. Volumes grew slightly, and price/mix improved, driven by solid performance of our beer portfolio. Our key beer brand, Feldschlösschen, our regional brands and our alcohol-free brews all delivered good growth. POLAND The Polish market grew, and our volumes increased slightly. After a slow start to the year, the business accelerated throughout the summer and towards the end of the year. We achieved price/mix of high-single-digit percentages, helped by good performance for our upper-mainstream and premium brands such as Okocim, Carlsberg, Zatec and Somersby, as well as strong performance of alcohol-free brews. THE UK Our volumes declined by 3% in a slightly growing beer market. Our volumes in the premium category increased, driven by growth of brands such as Poretti and licence brands, whereas the mainstream Carlsberg brand lost market share. During the year, we completed our exit from porterage activities, which reduced net revenue. OTHER MARKETS In the other Western European markets, we achieved particularly strong top-line and margin improvement in markets such as Bulgaria, Croatia, Serbia and the Baltics, where good growth of Carlsberg, Tuborg, craft & speciality and alcohol-free brews supported a positive price/mix development. Our German business delivered solid top-line performance, driven by our local power brands Lübzer and Astra. In our Export & Licence business, licence sales of Tuborg in Turkey increased significantly, while sales in some Middle Eastern countries declined due to significant market contraction caused by higher duties and VAT.

17 ASIA CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 17 CONTINUED GROWTH AND PREMIUMISATION Asia had another year of strong top- and bottom-line growth, with an important driver being the continued growth of our international brands. The importance of Asia for the Group has increased significantly over the past decade, during which we have expanded our presence in the region organically and through acquisitions. Today, we have an attractive position, with no. 1 and 2 positions in seven markets. The competitive landscape varies significantly between markets, with both global players and local brewers present. SAIL 22 singles out Asia as a significant contributor to the Group s top- and bottomline growth. Consequently, a significant proportion of our SAIL 22 investments has been allocated to the region. KEY PRIORITIES IN 2018 In 2018, our overall regional priority was to accelerate profitable top-line growth by growing our international core brands Tuborg and Carlsberg and our international speciality brand 1664 Blanc. In China specifically, we aimed at growing the footprint of these brands by expanding into new channels and big cities outside our core western China provinces. In addition to the international brands, we continued to strengthen our local power brands, which still contribute over 50% of our Asian volume. In 2018, we further expanded our Asian footprint through the acquisition of a controlling stake in our former joint venture in Cambodia, Cambrew. Following the acquisition, our ownership share is 75%. REGIONAL RESULTS The Asia region continued its good progress and delivered a strong set of results for the year. Net revenue grew organically by 13.3%, driven by 8.6% organic volume growth and +4% price/mix. Reported net revenue grew by 11.4% due to a negative currency impact in most countries in the region, which more than offset the acquisition impact of Cambrew. The solid 4% price/mix improvement was the result of our ongoing premiumisation efforts, especially in China, where the premium portfolio performed strongly. +13% TUBORG GROWTH IN ASIA 2018 was another strong year for Tuborg in Asia. Important drivers of the continued success of Tuborg during the year included the introduction of a new visual identity, and a variety of activities on our global music platform Tuborg Open. In 2018, Tuborg Open brought together popular musicians from local markets to create a song with a single global story told in different ways, as each collaborating artist used their own unique lyrics to reflect diversity and local culture. GROW IN ASIA

18 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 18 Organic operating profit grew by 15.8%, mainly due to the revenue growth. The operating margin declined by 40bp to 20.4%. While the gross margin improved considerably, this was offset by a significant increase in marketing investments, with a sizeable proportion of our SAIL 22 investments being allocated to further strengthening our Asian business, and as a result of the consolidation of Cambrew. Change The organic volume growth was broadly based, with all major markets delivering solid growth. PERFORMANCE BY MARKET Change Volume (million hl) 2017 Organic Acq., net FX 2018 Reported Beer % 2.0% % Other beverages % 15.7% % Total volume % 3.1% % DKK million Net revenue 13, % 2.7% -4.6% 15, % Operating profit before special items 2, % -1.3% -5.6% 3, % Operating margin (%) bp CHINA Our Chinese business achieved very strong results in Net revenue grew organically by 15%, driven by 8% organic volume growth and +7% price/mix. We outperformed the Chinese market, which declined by an estimated 1% due to the continued decline of the mainstream segment as the premium segments continued to expand. As a result, our premium portfolio grew by 13%. Our price/mix improvement was the result of list price increases and the pronounced premiumisation trend. INDIA AND NEPAL Our Indian business had an excellent year, following a challenging Our volumes grew by 19% and price/mix was +7%. The price/mix improvement was driven by strong growth of the Carlsberg brand and improved pricing. Profitability improved considerably due to volume growth, positive price/mix and supply chain efficiencies following the opening of the Karnataka brewery. Our Nepalese business showed strong progress. Following a 30% excise tax increase in the middle of the year, retail beer prices rose by approximately 15%, leading to a slightly declining price/mix. In H2, we revitalised the communication platform for the Tuborg brand. LAOS, VIETNAM AND CAMBODIA In Laos, our volumes grew by high-single-digit percentages, driven by growth of all three categories: beer, soft drinks and water. Price/ mix was slightly negative due to product mix. Our Beerlao brand strengthened its position as a result of improved communication. In line with our focus on craft & speciality, we launched crafty line extensions of the Beerlao brand. In Cambodia, we gained control of Cambrew in August after increasing our ownership from 50% to 75%. We are currently in the process of rebuilding the business and are optimistic about the prospects for the market and our business. Although the business had a challenging year with double-digit volume decline and operating loss, the first signs of the rebuild are encouraging. Total volume¹ (m hl) Net revenue¹ (DKKbn) Operating profit (DKKbn) Operating margin¹ (%) ¹ Volume and net revenue restated for 2017.

19 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 19 Our volumes in Vietnam declined slightly in a flat market. We saw good growth of the Carlsberg brand. MALAYSIA AND SINGAPORE Our Malaysian and Singaporean businesses delivered another year of very good performance, driven by share gains, especially in the premium categories. Carlsberg Smooth Draught grew double-digit, following the launch in Our premium international brands, such as 1664 Blanc and Somersby, also achieved very positive growth rates. REVITALISE CORE BEER +5% BEERLAO VOLUME GROWTH The Carlsberg Group has a strong position in Laos. This is due in no small part to our local power brand, Beerlao. In order to maintain and further build consumer loyalty and premiumise the brand, we launched three crafty variants in July 2018: Beerlao White, Amber and Hoppy. While still early days, the crafty range created a lot of excitement among consumers, with a very positive initial response. Our markets in Asia Country Consumption characteristics Per capita beer consumption (litres) On-trade share of market, approx. (%) Market position (no.) Our position Market share (%) Our operations Breweries¹ China /1² 6/61² 25 Vietnam Laos Cambodia Nepal India n/a 8 Myanmar Malaysia Singapore Hong Kong ¹ Breweries with capacity above 100,000 hl. ² Total China/western China. Source: GlobalData, Carlsberg estimates.

20 EASTERN EUROPE CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 20 REBALANCING VOLUME AND VALUE Eastern Europe achieved solid organic top-line growth in 2018, driven by a combination of volume growth and price/mix. Eastern Europe is our smallest region, accounting for 21% of operating profit. Our two main markets in the region are Russia and Ukraine, accounting for approximately 65% and 20% respectively of regional volumes. We have leading positions in all markets in Eastern Europe. In Russia and Ukraine, the competitive environment is split between a strong presence of global players and a large number of small local brewers. KEY PRIORITIES IN 2018 The overriding priority for Eastern Europe in 2018 was to rebalance the Golden Triangle in Russia following the significant volume decline in 2017 caused by PET downsizing. Regaining momentum in the Russian PET segment was therefore a focus, as was further strengthening our regional and local core brand portfolios and alcohol-free brews, where Baltika 0 holds a market-leading position. The ongoing channel shift towards modern trade and the growth of DIOT (draught in offtrade) in Russia reinforced our focus on growing in these channels. Finally, we continued our sharp focus on costs to counter the pressure on operating margin due to the volume growth in the low-priced PET segment. In the other Eastern European markets, the focus was on continuing the good momentum of recent years and maintaining the wellbalanced Golden Triangle in these markets. +5% VOLUME GROWTH IN UKRAINE Carlsberg Ukraine enjoyed another year of excellent results, supported by growth of our strong local power brand, Lvivske, and our international brands. Originally brewed by monks, Lvivske is the oldest Ukrainian beer brand, dating back to It is part of Ukrainian history, culture and cuisine and holds a market share of around 16%. To support the continued relevance of the brand for consumers, we expanded the range with two line extensions: Lwiwske Eksportowe and Knaypa. REVITALISE CORE BEER

21 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 21 Change Change Volume (million hl) 2017 Organic Acq., net FX 2018 Reported Beer % % Other beverages % % Total volume % % DKK million Net revenue 10, % % 10, % Operating profit before special items 2, % % 2, % Operating margin (%) bp REGIONAL RESULTS Our Eastern European business delivered 9.3% organic net revenue growth, driven by 3.1% volume growth and +6% price/mix. Reported net revenue declined by 1.3% due to weak currencies in all markets in the region. The drivers of the price/mix improvement differed between markets, with Russian price/mix mainly the result of higher prices, while the other markets benefited from both price increases and mix improvements. Organic operating profit grew by 11.3%, driven by volume growth, the positive price/mix and tight cost control. The operating margin improved by 30bp to 20.6%. The H2 operating margin declined year-on-year as a result of higher packaging costs and adverse currency impact. Volumes grew in all markets. PERFORMANCE BY MARKET RUSSIA In 2018, the Russian beer market grew for the first time since The market growth was an estimated 3%, supported by favourable weather in Q2 and the football world cup impact in Q3. Our volumes grew organically by 2%. Price/mix improved by 2%, with an improving trend towards the end of the year, when we implemented price increases to offset input cost pressure. Product mix remained negative due to the continued growth of the economy segment. The operating margin remained above 20%. UKRAINE The Ukrainian market grew slightly, and our volumes grew by mid-single-digit percentages, supported by growth of our strong local power brand Lvivske and our international brands. Total volume¹ (m hl) Net revenue¹ (DKKbn) Operating profit (DKKbn) Operating margin¹ (%) ¹ Volume and net revenue restated for 2017.

22 CARLSBERG GROUP ANNUAL REPORT 2018 REGIONAL REVIEW 22 Our markets in Eastern Europe Country Consumption characteristics Per capita beer consumption (litres) On-trade share of market, approx. (%) Market position (no.) Our position Market share (%) Our operations Breweries¹ Russia Ukraine Belarus Kazakhstan Azerbaijan ¹ Breweries with capacity above 100,000 hl. Source: GlobalData, Carlsberg estimates. The growth of Lvivske was supported by the line extension Lvivske Eksportowe and an alcohol-free variant. 16% BALTIKA 7 VOLUME GROWTH Baltika 7 is a premium line extension of Baltika, the leading national brand in Russia. In 2018, Russia hosted the football world cup, and Baltika was the proud sponsor of the Russian team. To support the team, Baltika 7 carried out a successful campaign called FootCheering, featuring some of Russia s top celebrities. The campaign included TV advertising and a wide range of digital media. Baltika 7 was also activated in more than 2,000 outlets in 66 cities. Price/mix developed very favourably due to price increases and growth in premium products, with particularly strong growth for 1664 Blanc, Grimbergen, Somersby and Garage. OTHER MARKETS Our businesses in Belarus, Kazakhstan and Azerbaijan all delivered solid revenue and earnings growth. LEVERAGE OUR STRONGHOLDS

23 Our strategy BEER TRENDS CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 23 BEER TRENDS IN OUR REGIONS Beer market trends and characteristics vary between and within our regions, although common features can be detected. economies, urbanisation and rising disposable income levels. It is important to note, though, that growth trends in these emerging markets are subject to volatility. An ongoing trend in many markets is the ongoing premiumisation, supported by the growth of craft & speciality beer and, in Asia, particularly China, the increasing demand for international beer brands. The growing interest in craft & speciality has several advantages for the beer category: it sparks consumer interest in the beer category, generates a positive perception of beer. In many Western European markets and in Russia, the alcohol-free beer segment is showing solid growth rates as a consequence of consumers desire to consume less alcohol and pursue a more healthy lifestyle. The growth of the segment is also supported by greater choice and the significantly improved quality of alcohol-free beer. Several Asian markets, including India, Laos, Cambodia and Vietnam, are seeing market volume growth. This is being driven by factors such as expanding populations, growing RE-INVENT THE BAR BY DEVELOPING DIGITAL TOOLS Re-invent the bar is an excellent example of our digital approach and adoption of agile ways of working. Re-invent the bar aims to strengthen the relationship with our on-trade customers by offering digital products that can help them grow their business. Based on a radical customer-centric way of working, including continuous testing and validation with customers in Hong Kong, Switzerland and Denmark, we work in cross-functional teams to rapidly develop, introduce and continuously improve a digital product for educating bar staff and another digital product that enables customers to make better business decisions based on insights from available data. STEP CHANGE WITH DIGITAL

24 BUSINESS MODEL A BUSINESS MODEL DRIVING VALUE CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY We strive to be a successful, professional and attractive brewer in our markets. This ambition is crucial for our business model with its clear priorities on markets, portfolio, customers, supply chain and sustainability. 24 WE FOCUS ON THE MARKETS WHERE WE HAVE A NO. 1 OR 2 POSITION... WHERE WE DELIVER AN ATTRACTIVE BEER PORTFOLIO FOR ALL CONSUMER SITUATIONS... AND STRIVE TO EXCEL IN OUR SERVICE TO ON- AND OFF-TRADE CUSTOMERS BY OPTIMISING OUR SUPPLY CHAIN AND IMPROVING PROCESSES AND SYSTEMS. Core beer is a volume business. Consequently, strong market positions are key drivers of profitability. We have particular focus on the 25 markets in Western Europe, Eastern Europe and Asia where we are no. 1 or 2. Beer is our core business and the strength of our portfolio lies in the strong local roots of our local brands combined with our excellent craft & speciality brands, alcohol-free brews and international core beer brands. Our customers range from on-trade to offtrade, from big to small. We aim to become their preferred beer supplier, providing products and services that will deliver value growth for them and us. Funding the Journey as a programme came to a successful end in It has delivered efficiencies and reduced costs across supply chain and back office. Going forward, Funding the Journey ways of working will prevail. BREWING FOR A BETTER TODAY AND TOMORROW In all our markets, we aim to lead in sustainability because it is central to our purpose and because we sincerely believe it is the right thing to do delivering tangible benefits for our business and for society as a whole. BREWING FOR A BETTER TODAY AND TOMORROW Our brands offer us powerful opportunities for communicating with consumers. We use these opportunities to encourage moderate, responsible consumption of our products. We also increase the availability of alcohol-free brews. BREWING FOR A BETTER TODAY AND TOMORROW Such products and services include sustainable packaging solutions, such as Snap Pack, and our innovative draught system, DraughtMaster. In addition, digital solutions and services are becoming increasingly important enablers. BREWING FOR A BETTER TODAY AND TOMORROW Recognising the need for strong actions in the face of complex sustainability challenges, our sustainability programme Together Towards ZERO sets clear and ambitious targets for carbon emissions and water usage.

25 SAIL 22 SHIFTING GEARS TO TOP-LINE GROWTH CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 25 We re pleased with the progress of our strategic priorities, which have been supported by Funding the Journey investments. Cees t Hart CEO SAIL 22 made good progress in 2018, delivering the remaining benefits from Funding the Journey as well as top-line growth. When launching SAIL 22 in March 2016, we defined clear strategic priorities for how we intended to strengthen our core beer business while at the same time positioning the Company for future growth. Our strategic priorities were defined based on analyses of the trends impacting the beer industry (see page 23) was the third year of SAIL 22. It was also the final year of Funding the Journey as a specific programme. By reinvesting part of the benefits from this programme, we have been able to invest in top-line growth. Our results in 2018 reassure us that our strategic priorities are right. Our focus in the future will be on both delivering top-line growth and improving the operating margin by premiumisation and continued focus on efficiencies and costs. In the following pages, we present snapshots of initiatives carried out during the year and follow up on our performance against our strategic KPIs. Our strategic priorities are presented in the 2016 Annual Report, available on +9% NYA CARNEGIE VOLUME GROWTH Teaming up with Brooklyn Brewery, we established the Nya Carnegie brewery in Stockholm, Sweden, in The craft brewery s product line-up features seven year-round beers, seasonal releases and special limited experiments. Since its inauguration, the brewery and its restaurant have become increasingly popular with both Stockholmers and tourists from around the world. Leveraging Carlsberg s distribution set-up, Nya Carnegie s beers are sold across Sweden. In 2018, Nya Carnegie grew volumes by 9%. GROW CRAFT & SPECIALITY

26 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 26 STRENGTHEN THE CORE There were many initiatives and actions during the year to grow and further develop our core beer portfolio in our core markets, strengthen execution and deliver on Funding the Journey. These included the betterment of the Carlsberg brand, continued support of our local power brands, further roll-out of DraughtMaster, stepping up on digital and executing strong discipline on Funding the Journey. CARLSBERG The Carlsberg brand has a unique history spanning 171 years. In September, we launched a new, distinctly Danish redesign of the brand. This redesign was based on extensive research into the brand s heritage, which led to careful recrafting of famous brand elements, including bringing the Carlsberg logo closer to its original design from We also launched a series of sustainable packaging innovations, including the Snap Pack, which is set to reduce plastic waste globally by more than 1,200 tonnes a year. Other sustainability improvements include a new coating on refillable glass bottles to extend their lifespan and new caps that remove oxygen to make the beer taste fresher for longer. The Carlsberg brand s green ink is also being replaced with a Cradle to Cradle Certified ink to improve recyclability. Read more about these sustainability initiatives on page 32. The new design and betterments have been launched in Norway, Finland, Sweden, Denmark and the UK, and many more markets, such as China, India and Malaysia, will follow in the coming months. LOCAL POWER BRANDS Our local power brands each occupy a distinct position in their respective markets. Although they differ by market, they share many common characteristics, opportunities and challenges. In order to support the continued relevance of these brands with consumers, we have developed a common brand framework, enabling markets to apply a well-tested, allround methodology to strengthen their local brands and positions in the market. All our markets have embraced the groupwide concepts and methodologies to further strengthen their local power brands. Examples include Okocim in Poland and Pirinsko in Bulgaria (see page 14). DRAUGHTMASTER The roll-out of our proprietary one-way keg system continued in DraughtMaster is an important enabler for our premiumisation efforts in the on-trade, as it allows outlets to serve a greater variety of beer on tap, including craft & speciality brands. The system is now available in all Western European markets, and the process of converting all steel-keg installations in the Nordic markets is well under way and expected to be finalised within the next two to three years. In 2018, the number of DraughtMaster installations grew by around 35%. DIGITAL Digital is one of the cornerstones of SAIL 22. In 2018, our digital journey took a big step forward with the establishment of a digital business transformation team responsible for assessing digital technologies and business models, and accelerating the development of digital products and services to drive future growth. To support our digital transformation, we are applying agile ways of working in small, crossfunctional teams, giving them the opportunity to develop and test new products and services in an agile and minimal way to determine what and how to upscale into meaningful solutions. +5% OKOCIM VOLUME GROWTH In 2017, we successfully relaunched our local upper-mainstream Okocim brand in Poland with a focus on authenticity, quality and beer expertise. Following up on the relaunch, in 2018 Carlsberg Polska launched its biggest ever digital campaign for the Okocim brand, further strengthening the brand image in relation to competitors, expanded distribution and launched popular radler variants. REVITALISE CORE BEER

27 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 27 During the year, we focused on a series of lighthouse projects aimed at taking a digital-first view of different areas of the business with a view to growing top and bottom line. The initial projects focused on route-to-market and the on-trade channel, identifying promising new products and services to step-change our customer offer. The scope also included areas within supply chain, including demand planning and artificial intelligence. We have established a digital council, chaired by our CEO and comprising the heads of digital, commercial, global business services, logistics and HR along with young digital natives. The council meets once a month to sponsor, accelerate and provide optimal conditions for the digital reinvention of the Group. FUNDING THE JOURNEY Funding the Journey came to a successful end in The four elements of the programme value management, supply chain efficiency, operating cost management and right-sizing of businesses all delivered better than initially expected. The programme achieved benefits of around DKK 3bn compared with the 2015 baseline. The benefits included the incentive payment to the top-200 management team, who were enrolled in the two-year Funding the Journey cash programme. The strong delivery has enabled us to reinvest more than DKK 1bn in the growth priorities of SAIL 22, including roll-out of DraughtMaster, STEP CHANGE WITH DIGITAL CARL S SHOP In 2018, we launched Carl s Shop an integrated online ordering platform for on-trade customers in Western Europe. Carl s Shop will provide superior customer service and reduce costs by digitising processes, globalising platforms and scaling online solutions. It works on all devices, enabling customers to place orders at any time of the day and avoid waiting in line for telesales. The platform gives access to training and educational material and targeted promotions, and aims to provide advice on bestselling products based on similar outlets. The initial results have been promising, showing visible growth in net revenue per customer. expansion of our international premium brands in China, growth of craft & speciality across our markets, further development of our alcoholfree brews, and stepping up on digital. The programme has led to the implementation of new ways of working, and systems and processes are now in place to ensure continued momentum within value management, and operating cost and supply chain management. Going forward, we will therefore continue our strict focus on efficiencies, costs and cash, and further improvement in these areas will contribute to continuous margin improvement.

28 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 28 KPIs & RESULTS STRENGTHEN THE CORE 2017: 3% growth 2018: 6% growth 2017: 4% growth 2018: 2% growth DKK ~3bn GROSS CONTRIBUTION FROM CORE BEER Core beer accounts for 87% of own beer net revenue, and our core beer brands are an important prerequisite for our no. 1 and 2 positions across Western Europe, Asia and Eastern Europe. It is therefore important that we revitalise our core beer portfolio to ensure its continued relevance for consumers. We measure our success by our ability to grow the gross brand contribution from core beer. In 2018, this KPI delivered 6% organic growth as a result of both volume growth and a positive price/mix in our three regions. OPERATING PROFIT GROWTH IN RUSSIA Russia remains our largest market in terms of operating profit, while on volumes China and Russia are of equal size. Recognising the challenges of past years, transforming our Russian business and ensuring a continued strong local business are a priority of SAIL 22. We measure our success in Russia by our ability to grow operating profit organically. In 2018, we rebalanced the Golden Triangle with a greater focus on volumes, though not sacrificing profits. Operating profit grew organically by 2%. FUNDING THE JOURNEY Funding the Journey as a specific programme came to an end in The programme proved more successful than initially anticipated. Following good delivery in 2016 and 2017, we upgraded the expected benefits from the programme twice during 2018, with total benefits of around DKK 3bn, of which more than DKK 1bn has been reinvested in the business. The mindset, systems and processes of Funding the Journey have been embedded in business operations, and the focus on efficiency, costs and cash will remain an important driver of future value creation. POSITION FOR GROWTH Recognising our geographic footprint, a pivotal ambition of SAIL 22 was to identify the Group s organic growth drivers. We aim to achieve sustainable organic top-line growth through a combination of volume growth, premiumisation and price. Asia is expected to be the main driver of volume growth, while premiumisation will be achieved through the growth of craft & speciality and alcohol-free brews in all three regions. CRAFT & SPECIALITY In 2018, our craft & speciality portfolio delivered growth of 26%, achieved through strong growth of the international speciality brands Grimbergen and 1664 Blanc, and of authentic craft brands such as Brooklyn, Nya Carnegie in Sweden and Valaisanne in Switzerland. By the end of 2018, we had ten craft breweries in Western Europe BLANC 1664 Blanc is our sophisticated French wheat beer. In 2018, the brand achieved a significant milestone, breaking through and going well beyond the 1m hl mark. The brand is sold globally and delivered volume growth of 49% over the year. Growth came from every corner of the world, and the brand has been successful in every market where it has been launched. In 2018, 1664 Blanc was launched in markets such as Denmark, Mexico and Chile. GRIMBERGEN Grimbergen is our abbey beer from Belgium dating back to It is an important brand in our international speciality portfolio, and in 2018 it continued its growth trajectory with brand volume up 14%. NYA CARNEGIE The Nya Carnegie brewery in Stockholm is an excellent example of our authentic craft strategy. The brewery, a cooperation with Brooklyn, was established in 2012, with the first brew coming out in The combination of Brooklyn s superior craft brewing skills and Carlsberg s brand-building and quality expertise and distribution power has generated strong growth rates since In 2018, Nya Carnegie volumes grew by 9%. ALCOHOL-FREE BREWS Our alcohol-free brew portfolio encompasses alcohol-free line extensions of core beer brands, the alcohol-free line extension of our international speciality brand 1664 Blanc and stand-alone alcohol-free brands. Combined, these showed strong momentum in 2018 and our alcohol-free brews grew by 33% in Western Europe. LOCAL ALCOHOL-FREE BREWS Our extensive portfolio of local alcohol-free brews includes brands such as Carlsberg Nordic in Denmark, Munkholm in Norway, Feldschlösschen Alkoholfrei in Switzerland and Baltika 0 in Russia. In 2018, Baltika 0 grew by 35%, supported by a massive communication and sampling

29 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 29 campaign, strong commercial focus and the successful launch of Baltika 0 Wheat in In Sweden, we promoted our growing range of alcohol-free brews by delivering alcoholfree brews to pleasure yachtsmen in Stockholm s archipelago. Our "alcohol-free brews boat" subsequently received a five-star rating from consumers on its Facebook page. Our alcohol-free brew portfolio in Sweden grew by 34%. In France, our alcohol-free brews grew by 21%, driven by 1664 Blonde Sans Alcool, 1664 Blanc Sans Alcool and Tourtel. BIRELL During the year, we launched Birell as the Group s first global alcohol-free brew. The brand was launched in Bulgaria and Poland in May. The comprehensive launch campaign included TV commercials, cutting-edge digital marketing, outdoor advertising and extensive sampling applying various techniques. The initial consumer response has been positive, and in Bulgaria the brand has already achieved a market share of 15% of the alcohol-free beer segment. +49% 1664 BLANC VOLUME GROWTH 1664 Blanc is a good example of SAIL 22. In 2015, it was a local French line extension of the 1664 lager. As part of SAIL 22, it was decided to turn the brand into a leading global speciality brand. Since then, 1664 Blanc has undergone a rapid transformation and is now the fastest-growing global brand in the Group. Its popularity with consumers is indisputable, not least in China, where the brand s sophisticated look and great taste led to volume growth of 51% in 2018, making China the brand s largest single market. GROW IN ASIA Our investments in premiumisation and expansion in Asia are delivering strong results. In 2018, total volumes grew organically by 8.6%. Our international portfolio in the region Tuborg, Carlsberg and 1664 Blanc delivered even better results, growing volumes by 14%. SAIL 22 is focused in particular on China and India, as these markets have good potential for top-line growth. In China, premiumisation will be an important driver of top-line growth, while in India market volume growth is also expected to be a contributor. Our 2018 results in Asia are presented on pages GROW CRAFT & SPECIALITY

30 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 30 KPIs & RESULTS POSITION FOR GROWTH 2017: 29% growth 2018: 26% growth WIN IN GROWING CATEGORIES: CRAFT & SPECIALITY Craft & speciality is an attractive category in most markets. The contribution margin of our craft & speciality portfolio significantly exceeds the core beer average, and consequently growing the portfolio s share of total beer volume contributes positively to margin progression was another year of strong growth for our craft & speciality brands with volume growth of 26%. Our international speciality brands 1664 Blanc and Grimbergen achieved volume growth of 14% and 49% respectively. CHINA During 2018, we further expanded our footprint in China by applying a big city approach outside our core western China provinces. By the end of the year, we were present in more than 20 large cities, where the consumer response to our international portfolio has been very positive. Our geographic expansion was a positive contributor to the price/mix of 7%. INDIA Although the Indian beer market is volatile, we continued to support and develop our Indian business. Tuborg and Carlsberg, our main brands in the country, delivered growth of 17% and 31% respectively. 2017: 15% growth 2018: 33% growth 2017: 8.1% growth 2018: 15.8% growth WIN IN GROWING CATEGORIES: ALCOHOL-FREE BREWS The alcohol-free brews category offers excellent margin opportunities and is growing across Western Europe and also in Eastern Europe. We believe it will remain an attractive beverage category in the years to come, as it benefits from the growing global health & wellness trend among consumers. Our portfolio of alcohol-free brews had very good momentum in 2018, achieving volume growth of 33% in the Western European markets. In Russia, growth was 33%, with significant volume growth for brands such as Baltika 0 and Baltika 7 Non- Alcoholic. GROW IN ASIA In 2018, Asia accounted for 29% of Group volumes and Group operating profit. Continuing the growth trajectory of this region remains a priority of SAIL 22, and in 2018 volume growth was 8.6% and organic operating profit growth 15.8%. Good growth of our international brands as well as our local power brands contributed to both top- and bottom-line growth. Particularly strong results were achieved in China and India, with organic operating profit growth of 18% and 131% respectively. 4x1 PREMIUMISING LOCAL CHINESE POWER BRANDS In December 2017, we simultaneously launched a white (wheat) beer line extension of our four local Chinese power brands: ChongQing, Xixia, Wusu and Dali. All the brands have market-leading positions in their local geographies, but, following the general decline of mainstream beer in China, all were in need of a premium offering. Generally, Chinese consumers enjoy wheat beer, and core beer consumers proved willing to trade up and pay more for a local wheat beer, delivering strong results for REVITALISE CORE BEER & GROW IN ASIA

31 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 31 WINNING CULTURE An important element of SAIL 22 is our winning culture, which is team-based, performancedriven, characterised by a high level of integrity and sets high standards within sustainability. TEAM-BASED PERFORMANCE Our team-based performance culture is based on our triple A concept (alignment, accountability and action). During the year, we maintained strict discipline on performance management and ensured a team-based, onecompany approach in our monthly business performance reviews and by aligning targets across markets and regions. TOGETHER TOWARDS ZERO Our ambitious sustainability programme, Together Towards ZERO (TTZ), defines our sustainability priorities and sets measurable targets for 2022 and 2030 respectively within the areas of carbon, water, responsible drinking and health & safety. Recognising that we cannot achieve our ambitions by working in isolation, TTZ was devised with the support of experts using a science-based approach, and we are collaborating with experts to deliver on it. We also launched the Carlsberg Young Scientist Community, where a group of postdocs will build on our scientific strength to identify and develop solutions within water and energy consumption at our breweries. In 2018, we entered into a partnership with WWF Denmark. With its help, we will devise solutions to reduce the total beer-in-hand carbon footprint of our products and protect local water resources. We will make further announcements about this during ZERO CARBON FOOTPRINT We are committed to bold climate action and the TTZ carbon targets are designed to reduce our emissions in line with the 1.5 C level of the Paris Agreement. We believe this is possible while still continuing to drive business growth. At our breweries We are acting fast to eliminate coal because it is a carbon-intensive, polluting source of energy. In 2018, we reduced our coal usage by 28% compared with 2017, representing a 78% reduction since We will continue the focus on converting our remaining coal-fuelled sites in China, India and Poland on our journey towards zero coal by We use solar installations at our breweries in China, India and Switzerland, and in 2018 we added a new 1 MW rooftop installation at our brewery in Lithuania. Other sources of renewables include biomass and biogas. A new biomass boiler at our Čelarevo brewery in Serbia, fuelled by wood pellets, helped reduce relative carbon emissions at the site by 22% in Moreover, in 2018 we introduced the Carlsberg Operational Manual at our breweries in order to continuously improve within our existing processes through best practice learnings from across the Group. Packaging At 40%, packaging is the biggest source of carbon emissions in our value chain. As many stakeholders are involved in the development and use of packaging, we must work together to improve it. One outcome of our work in this area was the launch of several packaging innovations for the Carlsberg brand during 2018 (see next page). ZERO WATER WASTE Water is an essential ingredient both in our products and for cleaning during the brewing process. Treating wastewater so that it can be reused is an essential method for cutting water usage within the brewing process. With the right equipment, it can be reused for cleaning bottles or safely discharged into the environment. 20,000 SHOPS VISITED IN UKRAINE On Global Beer Responsibility Day, Carlsberg Ukraine employees wearing T-shirts featuring retro audio-cassettes with the headline, Don t know how it works? Sorry, no beer for you! visited 20,000 shops to talk about the dangers of selling alcohol to young people. Shopworkers were given fun gifts to prompt ID requests, and two leading psychologists mentored parents on how to talk to their teenage children about the importance of not drinking alcohol while underage. TOGETHER TOWARDS ZERO RESPONSIBLE DRINKING In the UK, a new project involves recovering used rinsewater from the cleaning of bottles prior to filling. After treatment, the water is used for pasteurisation, saving around 4.5 million litres of water during the year. ZERO IRRESPONSIBLE DRINKING While consumers make their own decisions about how they consume our beers, we can support them in making smart choices. Our campaigns target the biggest issues in each market. In some, drink-driving is the greatest challenge, while in others it is underage or binge drinking. By working with local partners, we pinpoint the key behaviour to change at point of sale, during consumption moments and across our marketing communications.

32 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 32 OUR NEW SNAP PACK Our revolutionary new Snap Pack is designed to reduce waste, eliminating more than 1,200 tonnes of plastic per year. A GREENER GREEN The use of Cradle to Cradle Certified ink on our Pilsner bottle labels allows better recycling. FRESHER BEER Our new ZerO ² cap is cleverly designed to remove oxygen from the bottle for fresher tasting beer every time. 1,200 TONNES OF PLASTIC SAVED In September, we launched the pioneering Snap Pack solution to reduce plastic waste. Snap Pack glues together multi-packs, thereby making it possible for the Carlsberg Group to reduce plastic waste by more than 1,200 tonnes per year equivalent to 60 million plastic bags. In addition, a number of other betterments for the Carlsberg brand were achieved, including caps that remove oxygen to make the beer taste fresher for longer and changing the brand s green ink to a Cradle to Cradle Certified ink to improve recyclability. TOGETHER TOWARDS ZERO

33 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 33 By the end of 2018, 96% of our products carried responsible drinking messages advising consumers not to drink-drive and not to drink when underage or pregnant. In addition, we included information on ingredients and nutritional values per 100 ml on 86% of packaging in Western Europe. ZERO ACCIDENTS CULTURE Protecting the lives and health of our people is a fundamental priority for us. In 2017, we achieved a significant reduction in accident rates, and in 2018 we sustained this. During the year, we rolled out our new Life Saving Rules programme across the business. Built on industry experience, this programme focuses on the specific areas where we have learned that people s lives can be endangered if rules are not followed correctly. We are providing training for our leaders, preparing them to better model desired behaviours, communicate consistently and engage their teams with health & safety. By the end of 2018, we had reached 1,500 leaders, and we are targeting 1,200 more in Despite the positive progress within health & safety, our performance in 2018 was not good enough, as we very sadly recorded three fatalities. These tragedies underline the need for day-to-day vigilance to create a zero accidents culture. LIVE BY OUR COMPASS In order to ensure the high degree of integrity, honesty and ethical business conduct that is part of our winning culture, as well as reduce the risk of non-compliance with applicable rules and regulations, in 2016 we launched the Live by our Compass programme. The programme continues to provide detailed guidance on ethical behaviour, emphasising the importance of integrity at all levels of our organisation. We reinforce this with risk assessments, third-party screening, compliance training and market audits. In December 2018, we launched a single global online platform covering all codes, policies and manuals, accompanied by a comprehensive communications package. REPORTING Our 2018 Sustainability Report contains much more information on TTZ, including a detailed description of our KPIs and progress towards our 2022 and 2030 targets. The report carries an assurance statement by PwC on selected indicators, serves as our annual Communication on Progress to the United Nations Global Compact and enables us to live up to our legal responsibility for CSR disclosure under section 99a of the Danish Financial Statements Act. Download our Sustainability Report carlsberg-group-2018-sustainability-report/ KPIs & RESULTS WINNING CULTURE ZERO CARBON FOOTPRINT We want to achieve zero carbon emissions at our breweries by 2030, with a 50% reduction by Our full value chain target is a 30% reduction in emissions by 2030, with a 15% reduction by In 2018, we had reduced relative carbon emissions by 20% since ZERO WATER WASTE We aim to halve water usage at our breweries by 2030, with a 25% reduction by At 3.1 hl/hl in 2018, we have made a 9% improvement in water efficiency from our 2015 baseline. Performance in 2018 was on a par with 2017, meaning that faster change will be required to reach our 2022 target. ZERO IRRESPONSIBLE DRINKING Our targets include 100% distribution of alcohol-free brews to expand consumer choice and 100% of our markets to improve on responsible drinking year on year. In 2018, we made steady progress on key performance indicators, including responsible drinking messages and consumer information on our packaging, and growing alcohol-free beer availability and volume. ZERO ACCIDENTS CULTURE We are determined to provide a safe working environment for our employees, and our aim is to achieve zero lost-time accidents by In 2017, we achieved a significant reduction in accident rates, a performance we sustained in However, our performance was not good enough, as we very sadly recorded three fatalities.

34 CARLSBERG GROUP ANNUAL REPORT 2018 OUR STRATEGY 34 DELIVERING VALUE SAIL 22 is an organic strategy focused on improving and growing our current business in order to deliver value to shareholders. When launching SAIL 22 in March 2016, we identified three priorities for creating value for shareholders: growing operating profit organically, improving return on invested capital, and ensuring an optimal capital allocation. Our capital allocation principles are welldefined: 1. We invest in our business to drive long-term value creation; 2. We target a net interest-bearing debt/ebitda ratio of below 2.0x; 3. We target a dividend payout ratio of around 50%; 4. We distribute any excess cash back to shareholders through share buy-back; and 5. We deviate from the latter principle only if value-enhancing acquisition opportunities arise. By 2017, the second year of our seven-year strategy, we successfully delivered on the first three capital allocation principles was another year of successful delivery on our priorities for creating shareholder value, including the first three capital allocation principles. SHARE BUY-BACK As a result of recent years healthy development of the business and the strong earnings and cash flow, the Supervisory Board has decided to use share buy-back programmes to return excess cash to shareholders. The size of potential future share buy-back programmes will depend on the expected organic and inorganic investments needed to grow the business and the Group s intention to maintain net interest-bearing debt/ebitda below 2.0x. Consequently, the Group intends to buy back shares worth DKK 4.5bn during the 12-month period starting 6 February The share buy-back programme will be split into two tranches of approximately six months each. The first tranche started on 6 February at an amount of DKK 2.5bn, with a maximum of 15 million shares. The purpose of the programme is to reduce the Company s share capital and meet obligations related to the Group s share-based incentive programmes. At the Annual General Meeting in 2020, the Supervisory Board intends to propose that shares not used for hedging of incentive programmes be cancelled. The programme will be executed in accordance with the Safe Harbour Regulation (see section 4.3 of the consolidated financial statements). The Group is entitled to suspend or stop the programme at any time. Any such decision will be disclosed to the public by a Company announcement. The Carlsberg Foundation will participate pro rata in the 2019 share buy-back programme at its current notional holding of 30.33% of the total shares in the Carlsberg Group. KPIs & RESULTS DELIVER VALUE FOR SHAREHOLDERS 2017: 8.4% growth 2018: 11.0% growth 2017: +100bp 2018: +120bp 2017: 1.45x 2018: 1.29x ORGANIC GROWTH IN OPERATING PROFIT Sustainable organic growth in operating profit is testament to our ability to deliver top-line growth and margin improvement. In 2018, we delivered strongly against this KPI, achieving 11.0% organic growth in operating profit. The benefits from Funding the Journey were larger than initially expected and were the driver of the organic growth achieved in 2016, 2017 and ROIC IMPROVEMENT In order to drive a positive development in shareholder returns, we aim to continuously improve return on invested capital (ROIC). We will do this by improving earnings and reducing invested capital. In 2018, ROIC improved by 120bp to 8.1%. The main driver of the improvement was the growth in operating profit, the lower tax rate and lower invested capital. OPTIMAL CAPITAL ALLOCATION Our capital allocation targets include NIBD/EBITDA of below 2.0x and a dividend payout ratio of around 50%. We already achieved both these targets for Investing in profitable growth to secure the long-term value creation of the Group is, and will remain, our first priority, followed by maintaining a leverage of below 2.0x and a payout ratio of around 50%. As all these priorities were delivered on in 2018, the Supervisory Board announced a 12- month DKK 4.5bn share buy-back programme, starting 6 February 2019.

35 Governance RISK MANAGEMENT MANAGING RISKS TO REDUCE UNCERTAINTIES CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 35 We seek to manage risks in such a way that we minimise their threats while making the best use of their opportunities. GOVERNANCE STRUCTURE The Supervisory Board is ultimately responsible for risk management, and it has appointed the Audit Committee to act on its behalf in monitoring the effectiveness of the Group s risk management. Monitoring is mainly performed in connection with the half-year reviews, although recurring financial risks are evaluated on a quarterly basis. The Audit Committee adopts guidelines for key areas of risk, monitors developments and ensures that plans are in place for the management of individual risks, including commercial and financial risks. The Executive Committee (ExCom) is responsible for reviewing the overall risk exposure associated with the Group s activities. Risks are assessed according to a twodimensional heat map rating system that estimates the impact of the risk on operating profit or brand/image and the likelihood of the risk materialising. Based on this assessment, ExCom identifies the high-risk issues for the coming year. ExCom assigns risk owners, who are then responsible for mitigating the risks through a programme of risk management activities. Local entities and Group functions are responsible for the identification, evaluation, qualification, recording and reporting to management of business risks at local level. Local and functional risk assessment follows the same principles and methodology as Group-level risk assessment. The responsibility for the local review lies with the risk officer, typically the local head of Finance, to ensure that risk management is incorporated into management meetings, business reviews and key decision-making. Following the risk identification, local risk owners are assigned and given responsibility for mitigating the risks through a programme of risk management activities. Risk reporting is incorporated in regular business reviews and Group Risk Management is responsible for facilitating and following up on risk action plans for the most significant risks in the Carlsberg Group. RISKS IDENTIFIED FOR 2019 The identified risks for 2019 are shown in the box to the right. We rank risk according to impact and likelihood, and the five highest ranked risks are described in the following. COMMODITY AND FOREIGN EXCHANGE IMPACT Description This remains a high-impact risk for Increasing commodity prices, including barley and malt due to the poor harvest after the very warm summer in 2018, and adverse foreign exchange movements negatively affect the prices of raw materials and other inputs, thereby affecting the competitiveness of the business and the delivery of results. Competition in most markets is generally fierce and trade term pressure from our customers remains strong, leading to a challenging pricing environment. Foreign exchange and commodity risks, including our hedging approach, are described in more detail in the notes to the consolidated financial statements, see sections 1.2, 1.3 and 4.6. Mitigation We will continue to embed a value-based approach across all markets to achieve a positive price/mix while applying the Golden Triangle to ensure a balanced approach to IDENTIFIED RISKS FOR 2019 RISKS WITH HIGHEST POTENTIAL IMPACT AND PROBABILITY Commodity and foreign exchange impact Legal and regulatory compliance Partnerships Industry consolidation Political and economic instability OTHER IDENTIFIED RISKS Cyber and IT security Income tax Regulatory changes, incl. duties Strategy execution Talent management Pensions Business/brewery interruption Quality design and execution

36 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 36 market share, GPaL (gross profit after logistics) margin and operating profit. LEGAL AND REGULATORY COMPLIANCE Description Legal and regulatory compliance risks include competition law and data protection compliance as well as non-compliance with anti-bribery & corruption regulations. Failure to comply with regulations and Group policies may lead to fines, claims and brand damage. In 2018, the Group experienced competition law dawn raids in more than one jurisdiction. Competition law is a real and growing risk. The significance of this risk is also reflected in the consolidated financial statements (see section 3.3). Mitigation We are strengthening the Group-wide control framework covering all legal compliance areas, including, but not limited to, competition law, anti-bribery & corruption and data protection. We have policies in place, and conduct regular training of relevant employees and emphasise continued awareness building for the top-60 leadership team. Employees are required to pass e-learning modules within relevant legal areas on a continuous basis to drive awareness and knowledge building. PARTNERSHIPS Description Partnerships remain a high risk for We cooperate with partners in a number of markets, particularly the global soft drinks manufacturers in the Nordic countries and some Asian markets as well as local partners in some Asian and European markets. The strength of the relationships with our different partners, and in some cases the risk of partnership disagreement, may affect our ability to manage the growth of our business. Mitigation We seek to have an ongoing dialogue with our partners to identify any issues at an early stage. The relevant members of ExCom are actively involved in partner relationships, participating in the ongoing dialogues to ensure constructive negotiations and effective and fast resolution of potential issues. INDUSTRY CONSOLIDATION Description Industry consolidation has been viewed as a high risk since Consolidation within the beer industry has created bigger players with increased scale. Although strong local market positions remain key to creating value, consolidation creates stronger competitors with increased financial strength and bargaining power, potentially impacting on the Carlsberg Group s ability to compete. Consolidation is also taking place among our customers and suppliers, This leads to increased dependency, pricing pressure and the risk of margin pressure. Mitigation The priorities and initiatives of SAIL 22 seek to position the Group in such a way that we are able to act upon and mitigate the impact of industry consolidation. This includes improving our core beer business and driving craft & speciality and alcohol-free brews, becoming a valued partner of our customers and offering the preferred beer of our consumers. In addition, we will seek to further develop our partnerships with suppliers and create alternative sourcing solutions. POLITICAL AND ECONOMIC INSTABILITY Description Political and economic instability has been considered a high-impact risk since Adverse economic conditions may result in reduced consumer demand and a higher degree of price sensitivity on the part of consumers, while major social or political changes may disrupt sales and operations. Political and economic instability may lead to adverse exchange rate fluctuations, increased credit risk, insolvency of suppliers, impairment of goodwill or brands, operational restrictions, increases in duties and taxes imposed on beer, and possibly nationalisation of assets. Mitigation We closely monitor our markets in order to be able to respond in a timely manner to any adverse developments. Mitigating activities also include hedging and maintaining variability in the cost base. SAIL 22 also provides mitigation by further strengthening our core business in mature, stable markets, premiumising our portfolio and expanding our geographic footprint. Download our policies download-our-policies

37 CORPORATE GOVERNANCE CONTINUED FOCUS ON CORPORATE GOVERNANCE CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 37 Our governance framework aims to ensure active business management across the Group and reduce risk. The Carlsberg Group seeks to develop and maintain a positive and constructive relationship with all its stakeholders. For this reason, and in order to reduce risk and promote good governance in the Carlsberg Group, the Group has policies for a number of key areas, such as communications, human resources, environment, business ethics, competition law, marketing communication, finance and responsibility to customers and society in general. The Supervisory Board is responsible for overseeing that the Executive Committee (ExCom) has an adequate system and resources in place to ensure compliance with these policies. The basis of our corporate governance includes in particular the Danish Companies Act, the Danish Financial Statements Act, IFRS, the EU Market Abuse Regulation, Nasdaq Copenhagen A/S rules for issuers of shares, local legislation and the Company s Articles of Association. RECOMMENDATIONS ON CORPORATE GOVERNANCE The recommendations of the Danish Committee on Corporate Governance form part of Nasdaq Copenhagen A/S rules for issuers of shares. The Company complies with all but three of the recommendations, as explained below. With respect to the recommendation to publish quarterly reports, the Supervisory Board finds that half-year reporting is more appropriate due to the seasonality of the Group s business and the fact that the Group historically has seen high volatility in quarterly earnings and margins as a result of phasing of costs. The Supervisory Board considers the high volatility to be potentially misleading for understanding underlying Group performance. The Company issues Q1 and Q3 trading statements, which include volume and net revenue data, along with comments on sales performance in the quarter. With respect to diversity, the Company complies with the recommendation that the Board should discuss the Group s activities on an annual basis to ensure relevant diversity at management levels, including the adoption of a policy on diversity. However, the policy is not published on the Group s website as recommended by the Committee. Moreover, from May to December 2018, the Company did not comply with the recommendation that at least half of the members of the Supervisory Board elected by the general meeting should be independent. In May 2018 Nancy Cruickshank, a former tenth Supervisory Board member elected by the General Meeting, stepped down from the Supervisory Board to join the Group as Senior Vice President Digital Business Transformation. The process of identifying a new candidate for election at the next Annual General Meeting in March 2019 was immediately initiated and has been completed. The Company s statutory report on corporate governance includes a full list of the recommendations, with comments on the Group s position on each recommendation. Download our statutory report on corporate governance THE ANNUAL GENERAL MEETING The 2018 Annual General Meeting (AGM) took place on 14 March. The minutes of the meeting are available on Rules and deadlines applying to the AGM and other General Meetings are stipulated in the Company s Articles of Association, which are available on along with other AGM-related information. GOVERNANCE STRUCTURE The Supervisory Board has established three board committees: an Audit Committee, a Nomination Committee and a Remuneration Committee. For the time being, the Supervisory Board considers these committees to be sufficient; however, each year the Supervisory Board considers whether the number and scope of the committees are appropriate. The board committees prepare and facilitate Supervisory Board decisions. The Supervisory Board hires and supervises the Executive Board, which consists of the CEO and CFO, who are not members of the Supervisory Board. The Group also has a wider Executive Committee, which, in addition to the CEO and CFO, consists of a wider group of Executive Vice Presidents, portrayed on pages While the Executive Board members are

38 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 38 formally registered as executive directors of the Company, ExCom collectively prepares and implements the Company s strategic plans. COMPOSITION OF THE SUPERVISORY BOARD The Supervisory Board currently has nine members elected by the General Meeting and, in accordance with the Danish Companies Act, five members elected by the employees. Supervisory Board meetings Board member Flemming Besenbacher (Chairman) 1 Lars Rebien Sørensen (Deputy Chairman) 1,2 Hans Andersen 3 Carl Bache 1 Richard Burrows 1,2 Magdi Batato 1,2 Donna Cordner 1,2 Nancy Cruickshank 1,2 Eva Vilstrup Decker 3 Kees van der Graaf 1,2 Finn Lok 3 Erik Lund 3 Søren-Peter Fuchs Olesen 1 Peter Petersen 3 Nina Smith 1 Lars Stemmerik 1 The members elected by the General Meeting are elected individually and for a term of one year. Re-election is possible. Four of the nine members elected by the General Meeting are independent and have an international business background in addition to competences related to FMCG, finance, emerging markets and Russia. The other five members are affiliated to the Carlsberg Chairmanship meetings attended 1 Elected by the General Meeting. 2 Independent. 3 Employee-elected. Attended meeting. Did not attend meeting. Not a Board member at the time. Board meetings attended Foundation, the Company s principal shareholder, and have an academic background. These members are bearers of the Carlsberg Group culture, and the heritage and values stemming from founder J.C. Jacobsen, and the Supervisory Board sees these members as patrons of the same. The employee representatives are elected for a term of four years. They hold the same rights and obligations as the members elected by the General Meeting. The current employee representatives were elected in 2018 and the next election will take place in The Supervisory Board believes that the composition of the Board ensures an appropriate level of diversity and breadth in the members approach to their duties, thereby helping to ensure that decisions are well considered and that the long-term perspective is duly taken into account. Each year, the Supervisory Board considers the skills that should be represented on the Supervisory Board on the basis of a recommendation from the Nomination Committee. These skills are described in the Specification of Competences, available on The Nomination Committee and the Supervisory Board take the description of the required skills into consideration when recommending new candidates for the Supervisory Board. None of the members of the Supervisory Board are or have been involved in the executive management of the Group. Information on the Supervisory Board members is available on pages Detailed CVs can be found on DIVERSITY The Supervisory Board believes that its members should be chosen for their competences, but recognises the benefits of diversity in respect of experience, culture, international experience and gender, and has laid down the following specific objectives in relation to international experience and gender: With regard to international experience, the objective is that 50% or more of the Supervisory Board members elected by the General Meeting should have substantial international experience from managing large corporations or institutions. The Supervisory Board expects to fulfil this objective with the candidates nominated for election at the 2019 AGM. Furthermore, with a representation of more than 20 nationalities, the international experience of the Carlsberg Group top-60 leadership team is significant. The proportion of the underrepresented gender (currently women) on the Supervisory Board should reach at least 40% of the members elected by the General Meeting no later than In May 2018, Nancy Cruickshank stepped down from the Supervisory Board to join the Group as SVP Digital Business Transformation. Up to that point, three Supervisory Board members elected by the General Meeting were women. At the AGM in 2019, a new female candidate, Domitille Doat-Le Bigot, will be nominated to replace Nancy Cruickshank. Diversity remains a high priority for the Supervisory Board. The gender target applies to the boards of all

39 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 39 Danish Carlsberg Group companies that are required to set such objectives. This is currently Carlsberg A/S, Carlsberg Breweries A/S, Carlsberg Global Business Services A/S, Carlsberg Danmark A/S and Carlsberg Supply Company Denmark A/S. In 2018, two Supervisory Board members of Carlsberg A/S elected by the General Meeting were women, i.e. 22%, although up to May 2018, when Nancy Cruickshank stepped down, the figure was 30%. Accordingly, the objective with regard to gender diversity on the Supervisory Board has not yet been met. At Carlsberg Breweries A/S, all four Supervisory Board members elected by the General Meeting are men. The Board consists of the members of the Chairmanship and of the Executive Board of Carlsberg A/S, and it was not considered appropriate to change this approach in At Carlsberg Global Business Services A/S and Carlsberg Supply Company Denmark A/S, the three members of the respective boards are all men, which means that the target has not yet been met in either company. At Carlsberg Danmark A/S, one of the three Supervisory Board members is a woman, which means that the objective with regard to gender diversity is considered fulfilled. Whilst the Supervisory Board is of the opinion that competences must always come first, it will consider candidates with a view to increasing the underrepresented gender on the Supervisory Board. Currently, women are also underrepresented in senior management positions. To increase the proportion of women, the Supervisory Board has drawn up a policy and set out specific action points for the Executive Board to implement. In 2018, these actions included: As part of the Group Recruitment Policy, recruitment companies and executive search companies were asked to prepare a shortlist with at least one qualified female candidate when the Group recruits for senior management positions. At least one third of the participants in the Group's leadership programme should be women. This target was met in 2018, as 30% of the leadership programme nominees were women. Our leadership development centres support individual development towards senior leadership positions. In 2018, one third of the participants in our Development Centres Level 2 were women. THE WORK OF THE SUPERVISORY BOARD The Supervisory Board monitors that the Executive Board observes the goals, strategies and business procedures established by the Board. The Chairman and Deputy Chairman of the Supervisory Board constitute the Chairmanship. The specific duties of the Chairman and, in his absence, the Deputy Chairman are set out in the Rules of Procedure. In 2018, the Chairmanship and the Executive Board held six meetings. The Supervisory Board of Carlsberg A/S held eight meetings as well as a 1.5-day strategy seminar. SUPERVISORY BOARD 2018 MAIN TOPICS OF DISCUSSION Strategy Ongoing review and implementation of SAIL 22. Review of and debate on R&D, innovation, branding, quality and other strategic initiatives. Review and discussion of organic and potential inorganic opportunities. Monitoring of the Funding the Journey programme and the continued embedding of its principles in the Group s ways of working. Review and approval of the Group s capital structure and funding. Organisation, people, succession planning and talent management Recommendation of Magdi Batato as Supervisory Board candidate for election at the 2018 AGM. Succession planning for the Supervisory Board and its committees, including the recommendation of Lars Fruergaard Jørgensen, Domitille Doat-Le Bigot and Lilian Fossum Biner as candidates for the Supervisory Board at the 2019 AGM. Succession planning for the executive management. Review of the Group s people agenda, including diversity. Organisational restructuring, management and development of the internal talent pool, and general succession planning. Discussion and approval of the bonus structures in the Group s incentive programme, ensuring support of and alignment with SAIL 22. Compliance and core values Compliance and enhancing compliance efforts. Review of reputation survey and discussion of how to sustain and enhance the Group s strong reputation. Review of the progress of the Group s sustainability programme Together Towards ZERO. Review and discussion of how to improve the development and quality programmes. Governance and risk management Review of the outcome of the 2017 Supervisory Board evaluation process, including follow-up on all suggestions. Review and discussion of the Group Internal Audit reports, working processes and continued improvement. Discussion of relevant issues and ways of working with the external auditor. Approval of the external auditor for election at the 2018 AGM.

40 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 40 The Executive Board always attends the Supervisory Board meetings and, in order to improve transparency, the members of ExCom are also invited to attend when it makes sense. This gives the Supervisory Board better insight into the business. Prior to each Supervisory Board meeting, the Supervisory Board and ExCom have evening meetings at which key people from the Group present a market or other relevant topic. In 2018, these included various topics relating to SAIL 22 and to the Carlsberg organisation, such as the strategy on big cities, R&D, digital, sustainability, IT security, quality and our business in Sweden. SUPERVISORY BOARD EVALUATION PROCESS Each year, the Chairman of the Supervisory Board heads a structured evaluation of the Board s work, accomplishments and composition. In addition, the Supervisory Board considers, based on input from the Nomination Committee as well as the Board evaluation process, whether its members expertise should be updated or strengthened with respect to their duties. During the evaluation process in 2018, the Supervisory Board members generally expressed that they find the pre-read material and presentations of a high quality, that the topics and agendas cover relevant matters adequately, that meetings are well planned and the time and discussions well prioritised, and that they appreciate the open discussions at the Supervisory Board meetings with the Executive Board and other management members. The Supervisory Board also expressed satisfaction with the focus on risk evaluation, strategy and direction-setting during Board discussions. The evaluation process led to a short catalogue of ideas for minor changes to the way the Supervisory Board works. These ideas were considered and, where relevant, implemented by the Supervisory Board. BOARD COMMITTEES THE NOMINATION COMMITTEE In 2018, the Nomination Committee consisted of three members. The Nomination Committee is appointed for one year at a time. The Chairman of the Committee does not qualify as being independent, while the other two members do. The Nomination Committee works according to Terms of Reference, which are reviewed and approved annually by the Supervisory Board. The Terms of Reference are available on the Company s website. In 2018, the Committee had particular focus on: Planning the Board s evaluation process. Reviewing the Specification of Competences for Board members to ensure that they reflect the skills and experiences needed to best support the execution of SAIL 22. Succession planning at Supervisory Board and ExCom level. A significant task in 2018 was to identify new candidates for the vacant Supervisory Board position following the departure of Nancy Cruickshank as well as candidates for the vacant positions following the considerations of Lars Rebien Sørensen and Donna Cordner not to stand for reelection at the 2019 AGM. Evaluating the composition, structure and size of the Board. THE REMUNERATION COMMITTEE The work of the Remuneration Committee is described in the Remuneration report on pages THE AUDIT COMMITTEE In 2018, the Audit Committee consisted of four members. The Audit Committee is appointed for one year at a time. Three out of the four members of the Committee qualify as being independent of the Company, and the Committee has the relevant financial expertise and necessary experience of the Company s sector. Audit Committee meetings Nomination Committee meetings Committee member Flemming Besenbacher (Chairman) Committee meetings attended Committee member Donna Cordner (Chairwoman) Richard Burrows Committee meetings attended Richard Burrows Nina Smith Kees van der Graaf Lars Rebien Sørensen Lars Rebien Sørensen Flemming Besenbacher 1 Attended meeting. Not a Committee member at the time. 1 Not a member of the Committee; attends meetings in his capacity as Chairman of the Supervisory Board. Attended meeting. Not a Committee member at the time.

41 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 41 The Audit Committee works according to Terms of Reference and a detailed annual meeting plan, which are reviewed and approved by the Supervisory Board prior to the beginning of each financial year. The Supervisory Board approved the Audit Committee meeting plan for 2019 and the current Terms of Reference at the Supervisory Board meeting in December The Terms of Reference are available on the Company s website. In 2018, the Audit Committee had particular focus on a number of other areas, including: Monitoring the effectiveness of the control environment and overseeing the progress on developing a new reporting system on the effectiveness of the controls over financial reporting. Reviewing the progress of the work of the Group Internal Audit function. Reviewing the Integrity Committee s work. Managing financial risk. Reviewing the risk management process. AUDITING To safeguard the interests of shareholders and the general public, an independent auditor is appointed at the Annual General Meeting following a proposal from the Supervisory Board, which is based on a recommendation from the Audit Committee. INTERNAL CONTROL AND RISK MANAGEMENT RELATED TO THE FINANCIAL REPORTING PROCESS OVERALL CONTROL ENVIRONMENT The Supervisory Board and ExCom have overall responsibility for the Carlsberg Group s control environment. The Audit Committee is responsible for monitoring the effectiveness of the internal control and risk management systems related to the financial reporting process on an ongoing basis. The Group has a number of policies and procedures in key areas of financial reporting, including the Finance Policy, the Accounting Manual, the Controller Manual, the Use of Auditors Policy, the Chart of Authority, the Risk Management Policy, the Financial Risk Management Policy, the Corporate Governance Policy, the Information Security and Acceptable Use Policy, the Records Management & Personal Data Protection Policy, the Stock Exchange Compliance Policy, the Tax Policy, and the Code of Ethics and Conduct. The policies and procedures apply to all subsidiaries, and similar requirements are set out in collaboration with the partners in joint ventures. In 2018, the Group implemented a new risk and internal control framework for financial reporting. The framework defines who is responsible and where the controls are performed, and is designed to reduce and mitigate financial risks identified and ensure reliable internal and external financial reporting. The framework has been strengthened by implementing several controls, providing assurance that key risks are covered by mitigating internal control assertions. During the implementation and strengthening of the framework across functions and entities, there has been continual focus on the standardisation of processes and controls. In addition, the governance has been strengthened, including through extensive education and training in risk and controls. As a consequence of the Group s growth as a result of acquisitions, processes are not standardised across entities. The current state of the control environment is not yet, therefore, where the Group wants to be. The Group will continue to strengthen the financial control environment through further standardisation, increased automation, strong analytics and transparent governance. The framework is monitored through entities self-assessment of the effectiveness of the implemented controls and continuous testing of performance by an established second-lineof-defence team. The monitoring of the performance of the controls focuses on the quality of the controls, the effectiveness with which they are performed and the efficiency of the overall controlling processes. RISK ASSESSMENT With the implementation of the control framework for financial reporting, the Group has identified the risks that could have a direct or indirect material impact on the financial statements. Group entities are required to document transaction processes and the controls in place to cover the key risks identified. The minimum requirements for documenting the risks must be set out in the framework and visualised in the processes. Group entities are required to reassess their controls biannually and must update changes to the control framework for financial reporting, including new risks and controls. CONTROL ACTIVITIES The Group has implemented a formalised financial reporting process for the strategy process, budget process, estimates and monthly reporting on actual performance. The accounting information reported by all Group companies is reviewed both by controllers with regional or functional in-depth knowledge of the individual companies/functions and by technical accounting specialists. In addition, significant Group companies have controllers with extensive commercial and/or supply chain knowledge and insight. Controllers are continuously updated on best practice relating to internal financial controls, and trained in new accounting and reporting requirements. The entities in the Group are dependent on IT systems. Any weaknesses in the system controls or IT environment are compensated for by manual controls in order to mitigate any significant risk relating to the financial reporting. In 2018, the Group continued the outsourcing of certain key processes and implemented various tools for standardising key processes. Furthermore, the Group has established a quality assurance team in order to ensure the quality of the controls that are part of the outsourced processes, including their performance.

42 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 42 INFORMATION AND COMMUNICATION The Group has established information and communication systems to ensure accounting and internal control compliance. During the risk assessment periods, Group entities are required to report on missing or inadequate controls. Each entity assesses any need for compensating controls, or for design and implementation of new controls. During implementation of the new control framework in 2018, Group entities mapped controls on segregation of duties to implement necessary compensating controls, and are now implementing stronger remediated controls for segregation of duties in the ERP systems. MONITORING The Audit Committee s monitoring covers both the internal control environment and business risk. Monitoring of the internal control environment is covered by the Group s control framework for financial reporting. The financial risks are assessed and reviewed at multiple levels in the Group, including monthly performance review meetings at ExCom level, periodic review of control documentation, and audits performed by Group Internal Audit. GROUP INTERNAL AUDIT Group Internal Audit provides objective and independent assessment of the adequacy, effectiveness and quality of the Group s internal controls. Group Internal Audit works in accordance with a charter, which is reviewed on an annual basis and approved by the Audit Committee. Taking into account the annual review of business risks (cf. pages 35-36), an internal audit plan is drawn up for the year. The plan is reviewed and approved by the Audit Committee. In 2018, Group Internal Audit conducted audits mainly in the areas of financial reporting +12% SOMERSBY GROWTH First launched in Denmark in 2008, Somersby has grown to become the world s leading international cider brand outside the UK. Today, Somersby is available in 50 markets around the globe and has a no. 1 or 2 position in more than 30 markets, including Poland, Denmark, Switzerland, Ukraine, Malaysia and Australia. In 2018, Somersby experienced 12% volume growth, driven by a new, refreshingly optimistic advertising campaign and successful innovation with the multi-market launch of Somersby Sparkling Rose and Watermelon. GROW CRAFT & SPECIALITY controls, compliance (internal and external regulation) and information technology. SPEAK UP The Carlsberg Group has a Speak Up system that enables employees to report misconduct. Reports typically relate to suspected violations of the Carlsberg Code of Ethics and Conduct. The Speak Up system is facilitated by an external provider and allows concerns to be brought to the attention of Group Legal and Compliance anonymously and via multiple channels. The Chief Compliance Officer is responsible for reviewing all reported Speak Up matters. Furthermore, an Integrity Committee, chaired by the CFO, oversees the follow-up of major Speak Up investigations and provides a report on this to the Audit Committee at least quarterly. The Speak Up Manual and Misconduct Investigation Manual were updated in 2018 to reflect the roles and responsibilities of the parties involved in Speak Up investigations. The launch of these revised manuals was accompanied by a campaign to raise awareness of the various Speak Up channels available in the Group. Since the establishment of the Speak Up system in April 2010, some reports and their subsequent investigation have led to various disciplinary sanctions, including dismissal on the basis of violation of Group policies and, in some cases, relevant criminal laws. Most of these matters related to isolated incidents of fraud carried out by individual employees in the Group. The incidents have not had any material impact on the financial results of the Group or the Group company in question.

43 REMUNERATION EXECUTIVES REMUNERATION OUR APPROACH TO REMUNERATION CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 43 We want our executives to share our shareholders interests, and the remuneration of executive directors should support this alignment. The Remuneration Committee has not proposed any changes to the pay structure, and the Remuneration Policy will remain unchanged in REMUNERATION OF THE EXECUTIVE BOARD REMUNERATION POLICY The main elements of the executive directors remuneration arrangements are summarised in the table on page 45 and explained in more detail in the following paragraphs. Fixed salary The Committee reviews fixed salaries for the executive directors annually, taking into account a number of relevant factors, including the individual s performance, role and responsibilities. Executives make their own provision for retirement, meaning no additional pension contributions are made on their behalf. The Committee also takes into account levels of remuneration for similar roles at comparable companies in both the beverage and FMCG sectors, as well as companies based in the Nordic region across all industry sectors. The Committee and the Supervisory Board have decided to increase the executive directors fixed salaries in 2019 by 2.3%. Annual bonus The annual bonus is structured to incentivise the executive directors to deliver on the Group s short-term strategic objectives. For 2019, the potential maximum bonus will remain at 100% of fixed salary, with 60% of fixed salary payable for on-target performance. Determination of the final bonus is subject to the discretion of the Committee and the Supervisory Board, taking into account the overall performance of the business. For 2019, the annual bonus comprises two elements. The first element, accounting for 80% of the bonus, is based on three measures: organic net revenue growth, organic operating profit and addressable cash flow. The Carlsberg Group s remuneration is designed to enable us to recruit and retain individuals with the expertise and ability required to run a growing international company, and to do so in a way that drives our business success and rewards executives when shareholders are rewarded. Levels of fixed remuneration are set based on individuals experience and contribution, and in the context of the external market. While we do not seek to adhere rigidly to market benchmarks, we monitor and take into account pay levels and incentive opportunities in the principal markets from which we recruit: our European brewing and spirits peers and the global consumer goods sector, as well as companies across industry sectors in the Nordic region. Many of our investors including our main shareholder are long-term holders of our shares. We want our executives to share our shareholders perspective and believe that remuneration should align their interests accordingly. The balance between the short-term remuneration package and long-term share-based pay and shareholding requirements strengthens this alignment. The Company s full Remuneration Policy for the Supervisory Board and Executive Board, and guidelines for incentive programmes as approved at the Annual General Meeting on 30 March 2017, are available on the Company s website. MAIN ACTIVITIES IN 2018 During 2018, the main activities of the Remuneration Committee were: Determining levels of long-term incentive awards. Considering stakeholders feedback from the 2018 Annual General Meeting and from media. Reviewing the Remuneration Policy for the Executive Board and agreeing to make no changes to the policy. Considering the achievement of performance criteria for the annual bonus plan for Considering the achievement of performance criteria for the Funding the Journey cash incentive award. Reviewing fixed salary levels, bonus targets and levels of long-term incentive awards for OBJECTIVES Monitoring the implementation of the EU Shareholder Rights Directive and ensuring that we continue to report transparently and in line with all relevant guidelines and regulations. Reviewing the overall remuneration structures for 2020 and beyond as the Company enters a period of growth.

44 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 44 The second element, accounting for 20%, will be linked to the executives individual performance against measures that reflect the Group s strategic priorities. Long-term incentive arrangements Since 2017, the long-term incentive arrangements for the executive directors have consisted of performance shares only. Performance shares vest three years after the grant date, subject to performance conditions. The maximum value of awards that can be made in any single financial year, based on face value, is 300% of fixed salary. Each year, the Committee determines the total level of the long-term incentive award to be made to each executive. All long-term incentive awards are made at the discretion of the Committee. The vesting of any performance shares is subject to achievement of performance conditions, which were determined by the Committee prior to the grant date. The performance share award will be subject to four performance conditions measured over three years: total shareholder return (TSR), earnings per share (EPS), organic net revenue growth and return on invested capital (ROIC). The performance conditions increase and support alignment of the executive directors reward with the long-term Group strategy and shareholder value. In order for any award (or part of an award) to vest, the Committee must be satisfied that underlying Group performance is at a satisfactory level. Reclaiming variable pay In the event of serious misconduct, or if an annual bonus or long-term incentive award is made on the basis of accounts that prove to be materially misstated, the Company may reclaim, in full or in part, any overpayment from the annual bonus, or cancel or withdraw unexercised or unvested long-term incentive awards made to the executive directors. Share ownership guidelines In order to strengthen the alignment between executive directors and shareholders, the CEO is expected to build up a holding of shares equivalent to 150% of fixed salary, and the CFO a holding equivalent to 120% of fixed salary. Executive directors service contracts Service contracts for executive directors contain terms and conditions that are considered common to executive board members in Danish listed companies. THE COMMITTEE S RESPONSIBILITIES The Carlsberg Group s Remuneration Committee is responsible for the Remuneration Policy (including the general guidelines for incentive programmes) for all members of the Supervisory Board and the Executive Board, for making proposals on changes to the Remuneration Policy, and for obtaining the approval of the Supervisory Board prior to seeking shareholders approval at the Annual General Meeting. The Committee is responsible for making proposals to the Supervisory Board on the actual structure and content of the remuneration packages of members of the Supervisory Board and the Executive Board, in accordance with the policy approved by the shareholders. Remuneration Committee meetings Committee member Richard Burrows (Chairman) Magdi Batato Lars Rebien Sørensen Nancy Cruickshank Committee meetings attended The Committee monitors and advises the Supervisory Board on any major changes to the policy on senior employee remuneration structures for the Group, including for ExCom. The Committee s Terms of Reference, which govern how it operates, are approved by the Supervisory Board and are available on the Company s website. Kees van der Graaf Flemming Besenbacher 1 1 Not a member of the Committee; attends meetings in his capacity as Chairman of the Supervisory Board. Attended meeting. Did not attend meeting. Not a Board member at the time.

45 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 45 Remuneration Policy Element of pay Objective Award level Performance criteria Performance period Fixed salary Benefits Attract and retain high-performing individuals by reflecting market value of role and executive s skills and experience. Reward day-to-day performance. Set at a level to prevent over-reliance on variable pay. Operate a competitive benefits suite to aid recruitment and retention. Takes into account the market rate for similar roles in comparable international companies as well as executive s skills and experience. Perquisites and other benefits corresponding to market practices. No performance criteria per se, but the performance of the individual is taken into account when fixed salary levels are reviewed. Pension Executives make their own provision for retirement. N/A N/A N/A Annual bonus plan Drive and reward delivery of short-term business objectives. Maximum bonus opportunity is 100% of fixed salary. Bonus opportunity at target is 60% of fixed salary. Long-term incentive plan Drive and reward delivery of longer-term business objectives. Maximise alignment with shareholder value. The maximum level of long-term incentive awards is 300% of fixed salary based on the face value of the award at the grant date. N/A Organic net revenue growth. Organic operating profit. Addressable cash flow. Strategic measures. Relative total shareholder return (TSR). Growth in adjusted EPS at constant currencies. Organic net revenue growth. ROIC at constant currencies. Financial year. N/A Financial year. 3 years with 3-year vesting. Performance share awards performance criteria for 2019 Measure Description Performance condition measured over the three financial years Weighting Relative total shareholder return (TSR) Adjusted EPS growth Organic net revenue growth Growth in ROIC TSR measures the total return to investors. The Group s TSR performance will be measured relative to a comparator group of 16 companies¹. Adjusted EPS growth targets measure the Group s underlying financial success. Organic net revenue growth is a measure of the Group s ability to deliver on our SAIL 22 priorities. Growing ROIC is a key financial metric reflecting our ability to drive a positive development in shareholder returns. 25% of TSR element vests if the Group s TSR performance is at median of peer group s¹. 100% vests for upper-quartile performance. Straight-line vesting between median and upper quartile. 25% of the adjusted EPS at constant currencies element vests for 4% p.a. growth. 100% vests for 9% p.a. growth. Straight-line vesting between 4% p.a. and 9% p.a. 25% of the organic net revenue element vests for 1.5% p.a. growth. 100% vests for 4.5% p.a. growth. Straight-line vesting between 1.5% p.a. and 4.5% p.a. 25% of the ROIC in constant currencies element vests at 9.0% in % vests for 10.0% in Straight-line vesting between 9.0% and 10.0% in ¹ TSR comparator group: Kirin Holdings, Britvic, Davide Campari-Milano, Rémy Cointreau, Asahi Group Holdings, Compañía Cervecerías Unidas, Diageo, Heineken, Ambev, Brown-Forman, Pernod-Ricard, Sapporo Holdings, Dr Pepper Snapple Group, Tsingtao Brewery, Anheuser-Busch Inbev and Molson Coors Brewing. 25% 25% 25% 25%

46 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 46 REMUNERATION OF THE EXECUTIVE BOARD IN 2018 Fixed salary The annual fixed salary paid to Cees t Hart in 2018 was DKK 12.3m. The annual fixed salary for Heine Dalsgaard was DKK 7.4m. Annual bonus For the financial year 2018, 100% of the maximum bonus, being 100% of fixed salary, was payable for performance in 2018 for the CEO. The bonus payable amounts to DKK 12.3m for Cees t Hart. For the CFO, 100% of the maximum bonus was payable for performance in The bonus payable amounts to DKK 7.4m for Heine Dalsgaard. Long-term incentive awards Granted in 2018 In the financial year 2018, the CEO and CFO were granted long-term incentive awards with a face value of 255% and 210% of fixed fullyear salary respectively at the time of award. The composition of these awards is shown in the table on page 47. TEAM-BASED PERFORMANCE TRIPLE A OUR PERFORMANCE CULTURE Our triple A (alignment accountability action) concept defines how we collaborate and is the cornerstone of our team-based One Carlsberg performance culture, which is integrated into our remuneration policies. The top-200 management team in the Group is eligible for the long-term incentive (LTI) scheme. In 2016 and 2017, this was a two-year cash programme with one KPI: delivering the Funding the Journey benefits. To emphasise the increased focus on top-line growth, in 2018 we launched another two-year programme the Fund & Grow share plan with two KPIs: organic net revenue and operating profit growth. Simultaneously, from 2018 the top-200 management team is also enrolled in the ordinary three-year LTI programme, the KPIs of which are identical to those for the Executive Board: TSR, EPS, net revenue growth and ROIC. Both programmes are share-based. Shareholdings The number of shares in Carlsberg A/S held by Cees t Hart and Heine Dalsgaard and the movements during 2018 are shown in the table on page 47. The table includes the holdings of the related parties of the CEO and CFO. None of the executive directors own shares in any of the subsidiaries or associates of Carlsberg A/S.

47 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 47 Remuneration of executive directors The table below shows the total remuneration of the executive directors. The amount of remuneration in the form of unvested share awards does not reflect the value of shares transferred to or cash equivalents received by the executive directors during the year. The amount only reflects the technical accounting charge to the income statement required by IFRS. Executive directors granted share options and performance shares The table below outlines the share options and performance shares granted to the executive directors. Cees t Hart did not exercise any share options in The number of shares in the table is the maximum number of shares that can vest, based on an assessment of the extent to which the vesting conditions are expected to be met. The number of shares expected to vest is revised on a regular basis until vesting. Remuneration of executive directors Share ownership guidelines Share ownership guideline as % of fixed salary Executive directors holdings of Carlsberg A/S shares Cees t Hart Actual % held at 31 Dec Number Heine Dalsgaard DKK million Fixed salary Cash bonus Other benefits Special bonus¹ Remuneration settled in cash Other non-monetary benefits Unvested share awards Remuneration, non-monetary and share-based Total cash and non-cash ¹ Special bonus covering remuneration waived from previous employer, in total DKK 15m, paid out in 2016 and Fair value of unvested options and performance shares as % of fixed salary (prior to deduction for tax and incidental costs) Cees t Hart 150% 41% 826% Heine Dalsgaard 120% 70% 592% DKK million 1 Jan Additions Sold 31 Dec Market value Cees t Hart B shares 7, , Heine Dalsgaard B shares 7, , Executive directors granted share options and performance shares Grant year SHARE OPTIONS Cees t Hart Exercise year 1 Jan Granted 31 Dec Number For exercise 31 Dec. DKK million Fair value 31 Dec ,334-97,334 97, ,650-17,650-2 Total 114, ,984 97, PERFORMANCE SHARES Cees t Hart ,709-14, ,000-50, ,263 44, Total 64,709 44, , Heine Dalsgaard ,370-10, ,877-24, ,023 22, Total 35,247 22,023 57, FUNDING THE JOURNEY PERFORMANCE SHARES Cees t Hart ,415-23, Total 23,415-23, Heine Dalsgaard ,827-13, Total 13,827-13, Total 252,182 66, ,468 97,

48 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 48 REMUNERATION OF THE SUPERVISORY BOARD REMUNERATION POLICY The remuneration of the Supervisory Board for 2018 was approved by the Annual General Meeting in March The remuneration of the Supervisory Board consists of a fixed annual base fee. The Chairman receives a single fee of four-anda-half times the base fee and no additional fee for any committee work. The additional fee for committee work for other members of the Supervisory Board is shown in the table. REMUNERATION OF THE SUPERVISORY BOARD IN 2018 The fees for members of the Supervisory Board for the financial year 2018 are set out in the table below. The number of shares in Carlsberg A/S held by Supervisory Board members, including holdings of related parties, at the beginning of the financial year and movements to 31 December 2018 are also shown below. No member of the Supervisory Board owns shares or bonds in any of the subsidiaries or associates of Carlsberg A/S. The members of the Supervisory Board of Carlsberg A/S are remunerated for duties performed in the Company. The fees are reviewed, but not necessarily increased, each year, taking into account market practice with reference to an international comparator group as well as the need to attract and retain highcalibre individuals. Remuneration of the Supervisory Board Members of the Supervisory Board are not included in share incentive programmes, retirement benefit plans or other schemes. No agreements have been entered into concerning termination benefits, and no such payments were made in Supervisory Board remuneration principles in 2018 Base fee (DKK thousand) All Supervisory Board members 412 Additional fee (as % of base fee) Chairman of the Supervisory Board¹ 350% Deputy Chairman of the Supervisory Board 50% Chairman of the Audit Committee 113% Chairman of the Remuneration Committee and of the Nomination Committee 50% Member of Board committee (per committee) 38% ¹ The Chairman does not receive any additional fees for committee work. DKK million Flemming Besenbacher (Chairman of the Supervisory Board and of the Nomination Committee) Lars Rebien Sørensen (Deputy Chairman) Hans Andersen Carl Bache Magdi Batato Richard Burrows (Chairman of the Remuneration Committee) Donna Cordner (Chairman of the Audit Committee) Nancy Cruickshank Eva Vilstrup Decker Elisabeth Fleuriot Kees van der Graaf Finn Lok Erik Lund Søren-Peter Fuchs Olesen Peter Petersen Nina Smith Lars Stemmerik Total Supervisory Board members holdings of Carlsberg A/S shares Number DKK million 1 Jan Additions Sold 31 Dec Market value Flemming Besenbacher B shares 1, , Lars Rebien Sørensen B shares Hans Andersen B shares Carl Bache B shares Magdi Batato B shares Richard Burrows B shares 2, , Donna Cordner B shares Eva Vilstrup Decker B shares Finn Lok B shares Erik Lund B shares Søren-Peter Fuchs Olesen B shares Peter Petersen B shares Nina Smith B shares Lars Stemmerik B shares Total 5, ,

49 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 49 SUPERVISORY BOARD FLEMMING BESENBACHER CHAIRMAN (SINCE 2012) Nationality: Danish Year of birth: 1952 Appointed (until): 2005 (2019) LARS REBIEN SØRENSEN DEPUTY CHAIRMAN (SINCE 2015) Nationality: Danish Year of birth: 1954 Appointed (until): 2015 (2019) HANS ANDERSEN CARL BACHE MAGDI BATATO Nationality: Danish Year of birth: 1955 Appointed (until): 1998 (2022) Nationality: Danish Year of birth: 1953 Appointed (until): 2014 (2019) Nationality: Swiss Year of birth: 1959 Appointed (until): 2018 (2019) BOARD FUNCTION Non-executive, non-independent director. BOARD COMMITTEES Nomination Committee (Chairman). PROFESSION Professor, D.Sc., h.c. mult, FRSC; Chairman of the Board of Directors of the Carlsberg Foundation. NON-EXECUTIVE FUNCTIONS Chairman of the Board of Directors of Aarhus Vand A/S and UNLEASH. BOARD FUNCTION Non-executive, independent director. BOARD COMMITTEES Audit Committee, Remuneration Committee, Nomination Committee. PROFESSION Non-executive board director. NON-EXECUTIVE FUNCTIONS Chairman of the Board of Directors of the Novo Nordisk Foundation and Novo Holdings A/S. Member of the Board of Directors of Jungbunzlauer Suisse AG, Essity AB and Thermo Fisher Scientific Inc. BOARD FUNCTION Employee representative. BOARD COMMITTEES None. PROFESSION Brewery worker, Carlsberg Supply Company Danmark A/S. NON-EXECUTIVE FUNCTIONS None. BOARD FUNCTION Non-executive, non-independent director. BOARD COMMITTEES None. PROFESSION Professor, Ph.D., Dr.Phil.; head of the Doctoral School of the Humanities at the University of Southern Denmark. NON-EXECUTIVE FUNCTIONS Member of the Board of Directors of the Carlsberg Foundation and of the board of a publishing firm. BOARD FUNCTION Non-executive, independent director. BOARD COMMITTEES Remuneration Committee. PROFESSION Executive Vice President and Head of Operations at Nestlé S.A. NON-EXECUTIVE FUNCTIONS Member of the Board of World Business Council for Sustainable Development. Lars Rebien Sørensen is not standing for re-election at the AGM in The Supervisory Board members full CVs, including skills and competences, are available on

50 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 50 SUPERVISORY BOARD RICHARD BURROWS DONNA CORDNER EVA VILSTRUP DECKER FINN LOK ERIK LUND Nationality: Irish Nationality: American Nationality: Danish Nationality: Danish Nationality: Danish Year of birth: 1946 Appointed (until): 2009 (2019) Year of birth: 1956 Appointed (until): 2012 (2019) Year of birth: 1964 Appointed (until): 2014 (2022) Year of birth: 1958 Appointed (until): 2014 (2022) Year of birth: 1964 Appointed (until): 2015 (2022) BOARD FUNCTION Non-executive, independent director. BOARD COMMITTEES Audit Committee, Remuneration Committee (Chairman). PROFESSION Non-executive board director. NON-EXECUTIVE FUNCTIONS Chairman of the Board of Directors of British American Tobacco and Craven House Capital. Member of the Board of Directors and Chairman of the Remuneration Committee of Rentokil Initial plc. BOARD FUNCTION Non-executive, independent director. BOARD COMMITTEES Audit Committee (Chairman). PROFESSION Managing partner of OKM Capital. NON-EXECUTIVE FUNCTIONS Member of the Board of Directors of Lia Diagnostics. Donna Cordner is not standing for reelection at the AGM in BOARD FUNCTION Employee representative. BOARD COMMITTEES None. PROFESSION Director, Carlsberg Breweries A/S. NON-EXECUTIVE FUNCTIONS None. BOARD FUNCTION Employee representative. BOARD COMMITTEES None. PROFESSION Ph.D., Senior Scientist, Carlsberg A/S. NON-EXECUTIVE FUNCTIONS None. BOARD FUNCTION Employee representative. BOARD COMMITTEES None. PROFESSION Head Brewer, Carlsberg A/S. NON-EXECUTIVE FUNCTIONS None. The Supervisory Board members full CVs, including skills and competences, are available on

51 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 51 SUPERVISORY BOARD SØREN-PETER FUCHS OLESEN PETER PETERSEN NINA SMITH LARS STEMMERIK Nationality: Danish Nationality: Danish Nationality: Danish Nationality: Danish Year of birth: 1955 Appointed (until): 2012 (2019) Year of birth: 1969 Appointed (until): 2010 (2022) Year of birth: 1955 Appointed (until): 2013 (2019) Year of birth: 1956 Appointed (until): 2010 (2019) BOARD FUNCTION Non-executive, non-independent director. BOARD COMMITTEES None. PROFESSION Professor, D.M.Sc; CEO of the Danish National Research Foundation. NON-EXECUTIVE FUNCTIONS Member of the Board of Directors of the Carlsberg Foundation. BOARD FUNCTION Employee representative. BOARD COMMITTEES None. PROFESSION President of the Staff Association; Process Lead, Carlsberg Supply Company Danmark A/S. NON-EXECUTIVE FUNCTIONS None. BOARD FUNCTION Non-executive, non-independent director. BOARD COMMITTEES Audit Committee. PROFESSION Professor, M.Sc. (Econ); nonexecutive director. NON-EXECUTIVE FUNCTIONS Member of the Board of Directors of the Carlsberg Foundation. Chairman of the Board of Directors of Forenet Kredit. Deputy Chairman of the Board of Directors of Nykredit Realkredit A/S and Nykredit Holding A/S. BOARD FUNCTION Non-executive, non-independent director. BOARD COMMITTEES None. PROFESSION Professor, D.Sc; non-executive director. NON-EXECUTIVE FUNCTIONS Member of the Board of Directors of the Carlsberg Foundation. Nina Smith is not standing for re-election at the AGM in The Supervisory Board members full CVs, including skills and competences, are available on

52 OUR MANAGEMENT TEAM CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 52 EXECUTIVE COMMITTEE CEES T HART CEO HEINE DALSGAARD CFO JESSICA SPENCE EXECUTIVE VICE PRESIDENT, GROUP COMMERCIAL PHILIP HODGES EXECUTIVE VICE PRESIDENT, GROUP SUPPLY CHAIN Nationality: Dutch Year of birth: 1958 Appointed: 2015 Nationality: Danish Year of birth: 1971 Appointed: 2016 Nationality: British/Luxembourgish Year of birth: 1975 Appointed: 2018 Nationality: Swiss/British Year of birth: 1966 Appointed: 2017 PRIOR EXPERIENCE Prior to joining the Carlsberg Group, Cees was CEO of the Dutch dairy company Royal FrieslandCampina, a position he had held since Prior to FrieslandCampina, Cees spent 25 years with Unilever, holding management positions across Eastern Europe, Western Europe and Asia. His last position at Unilever was as a member of the Europe Executive Board. Cees is a member of the Supervisory Board of KLM. PRIOR EXPERIENCE Heine joined the Carlsberg Group in 2016 from ISS, one of the world s largest facility services companies. He went to ISS in 2013, prior to the company s IPO in Before ISS, he was Group CFO at Grundfos, a leading global pump manufacturer. Heine s previous experience includes various senior management and financial positions at companies such as Carpetland, Hewlett Packard and Arthur Andersen. PRIOR EXPERIENCE Jessica joined the Carlsberg Group in 2012 as Marketing Director, Asia region, and in 2014 was promoted to Vice President Commercial, Asia region. Since 2015, she has been globally responsible for the Group s commercial function, including marketing, sales, innovation and R&D. Jessica joined the Group from SABMiller, where she held several senior commercial positions in the UK, Russia, Slovakia and Poland. PRIOR EXPERIENCE Philip joined the Carlsberg Group in February His most recent position was at Mondelēz, where he was Senior Vice President, heading up the integrated supply chain in Europe for Mondelēz International. His previous experience includes managerial positions with Kraft Foods in Europe, Asia and the USA within supply chain and finance.

53 CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 53 EXECUTIVE COMMITTEE CHRIS WARMOTH EXECUTIVE VICE PRESIDENT, WESTERN EUROPE GRAHAM FEWKES EXECUTIVE VICE PRESIDENT, ASIA JACEK PASTUSZKA EXECUTIVE VICE PRESIDENT, EASTERN EUROPE Nationality: British Year of birth: 1959 Appointed: 2014 Nationality: British Year of birth: 1968 Appointed: 2014 Nationality: Polish Year of birth: 1963 Appointed: 2015 PRIOR EXPERIENCE Chris first joined the Carlsberg Group as Senior Vice President, Asia in During his tenure, he has headed up Funding the Journey and, most recently, Group Strategy. Previously, Chris worked for H.J. Heinz, where he held various senior management positions in Continental and Eastern Europe and the Far East, with his last position being Executive VP for Asia Pacific, Middle East and Africa. Prior to joining Heinz, Chris worked for The Coca-Cola Company and P&G. PRIOR EXPERIENCE Graham joined the Carlsberg Group as Vice President Commercial, Asia in 2008, before becoming Senior Vice President of Group Sales, Marketing & Innovation in Graham has strong experience in the global drinks business, having served in a wide range of international sales and marketing roles for Grand Metropolitan plc, Foster s Brewing Group and S&N plc. PRIOR EXPERIENCE Jacek joined Carlsberg in 2009 and has been Managing Director of our businesses in Poland, Norway and, since 2015, Russia. Prior to joining the Group, Jacek was with P&G, where he held various sales positions in multiple markets, including customer team assignments with Wal-Mart in the USA and Tesco in Central Europe and Asia. Jacek has also been Commercial VP for Danone in Poland and the Baltics, and General Manager for AIG operations in Poland.

54 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SHARE INFORMATION INFORMATION FOR SHAREHOLDERS CARLSBERG GROUP ANNUAL REPORT 2018 GOVERNANCE 54 The Annual General Meeting of Carlsberg A/S will be held on 13 March 2019 at Ny Carlsberg Glyptotek, Dantes Plads 7, Copenhagen. Carlsberg A/S is listed on Nasdaq Copenhagen. The Company has around 40,000 registered shareholders. The Company has two share classes: Carlsberg A and Carlsberg B. Each A share carries 20 votes, while each B share carries two votes and is entitled to a preferential dividend. The B share is included in the Nasdaq OMX Nordic Large Cap and OMXC20 blue-chip indices. The Carlsberg B share price was DKK at 31 December This was a decline of Carlsberg B share and OMXC20 share index development % during the year, while the OMXC20 share index declined by 13%. As a supplement to its Copenhagen listing, the Company has established a sponsored level 1 ADR (American Depository Receipt) programme with J.P. Morgan. The ADRs trade over-the-counter in the USA under the symbol CABGY. More information on the ADR programme is available on our investor website. MAJOR SHAREHOLDERS At 31 December 2018, the Company s largest shareholder was the Carlsberg Foundation with Shareholder geographic split (% of free float) Other 30% USA 38% 30% of the capital and 75% of the votes. In accordance with section 29 of the Danish Securities Trading Act, Massachusetts Financial Services Company (Boston, USA) has notified Carlsberg that it too owns more than 5% of the share capital. DIVIDEND POLICY The Carlsberg Group s dividend policy stipulates an adjusted payout ratio of around 50%. In addition, the Company has launched a share buy-back programme. For more information, see page 34. INVESTOR RELATIONS The Carlsberg Group aims to give shareholders and the market the best possible insight into factors considered relevant for ensuring market-efficient and fair pricing of the Company s shares. This is achieved through the quality, consistency and continuity of the information provided to the market, which is handled by the Group s Investor Relations department. We observe a four-week silent period prior to the publication of the annual and halfyear reports, and a two-week silent period prior to the Q1 and Q3 trading statements. GROUP WEBSITE provides comprehensive information about the Group and its shares and bonds, including company announcements, annual and quarterly reports, share prices and financial data, investor presentations, webcasts and transcripts, and a financial and events calendar. At the end of 2018, a total of 31 analysts had coverage of the Company. Their names and consensus estimates can be found on the website Carl B OMXC20 DK 16% UK 16% Share information Share class A B Total Number of shares 33,699, ,857, ,556,806 Carlsberg Foundation 33,061,264 13,202,708 46,263,972 Votes per share 20 2 Par value DKK 20 DKK 20 Share price, year-end DKK DKK Proposed dividend per share DKK 18.0 DKK 18.0

55 Forward-looking statements CARLSBERG GROUP ANNUAL REPORT 2018 FORWARD-LOOKING STATEMENTS 55 FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements, including statements about the Group s sales, revenues, earnings, spending, margins, cash flow, inventory, products, actions, plans, strategies, objectives and guidance with respect to the Group's future operating results. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words believe, anticipate, expect, estimate, intend, plan, project, will be, will continue, will result, could, may, might, or any variations of such words or other words with similar meanings. Any such statements are subject to risks and uncertainties that could cause the Group s actual results to differ materially from the results discussed in such forward-looking statements. Prospective information is based on management s then current expectations or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions underlying such expectations or forecasts, may change. The Group assumes no obligation to update any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Some important risk factors that could cause the Group s actual results to differ materially from those expressed in its forward-looking statements include, but are not limited to: economic and political uncertainty (including interest rates and exchange rates), financial and regulatory developments, demand for the Group s products, increasing industry consolidation, competition from other breweries, the availability and pricing of raw materials and packaging materials, cost of energy, production- and distribution-related issues, information technology failures, breach or unexpected termination of contracts, marketdriven price reductions, market acceptance of new products, changes in consumer preferences, launches of rival products, stipulation of fair value in the opening balance sheet of acquired entities, litigation, environmental issues and other unforeseen factors. New risk factors can arise, and it may not be possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on the Group s business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Accordingly, forward-looking statements should not be relied on as a prediction of actual results.

56 Consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 56 CONSOLIDATED FINANCIAL STATEMENTS Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes PARENT COMPANY FINANCIAL STATEMENTS Statements Notes REPORTS SECTION 1 OPERATING ACTIVITIES 1.1 Segmentation of operations Operating expenses, inventories and deposit liabilities Foreign exchange risk related to earnings Cash flow from operating activities Trade receivables and on-trade loans...70 SECTION 2 ASSET BASE AND RETURNS 2.1 Segmentation of assets and returns Impairment Intangible assets and property, plant and equipment...80 SECTION 3 SPECIAL ITEMS AND PROVISIONS 3.1 Special items Provisions Contingent liabilities...86 SECTION 4 FINANCING COSTS, CAPITAL STRUCTURE AND EQUITY 4.1 Financial income and expenses Net interest-bearing debt Capital structure Borrowings and cash Interest rate risk Foreign exchange risk related to net investments and financing activities Liquidity risk Derivative financial instruments...97 SECTION 5 ACQUISITIONS, DISPOSALS, ASSOCIATES AND JOINT VENTURES 5.1 Investment model and risks Acquisitions and disposals Contingent considerations Associates and joint ventures SECTION 6 TAX 6.1 Income tax Deferred tax SECTION 7 STAFF COSTS AND REMUNERATION 7.1 Staff costs Remuneration Share-based payments Retirement benefit obligations and similar obligations SECTION 8 OTHER DISCLOSURE REQUIREMENTS 8.1 Earnings per share Related parties Fees to auditors Events after the reporting period SECTION 9 BASIS FOR PREPARATION 9.1 Significant accounting estimates and judgements General accounting policies Changes in accounting policies New legislation SECTION 10 GROUP COMPANIES 10 Group companies Management statement Auditor s report

57 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 57 INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME DKK million Section Revenue 88,970 85,789 Excise duties on beer and soft drinks -26,467-25,134 Net revenue ,503 60,655 Cost of sales ,283-30,447 Gross profit 31,220 30,208 Sales and distribution expenses ,474-17,144 Administrative expenses -4,615-4,563 Other operating activities, net Share of profit after tax of associates and joint ventures Operating profit before special items 9,329 8,876 Special items, net ,565 Financial income Financial expenses 4.1-1,080-1,299 Profit before tax 8,519 3,523 Income tax 6.1-2,386-1,458 Consolidated profit 6,133 2,065 Attributable to Non-controlling interests Shareholders in Carlsberg A/S (net profit) 5,309 1,259 DKK million Section Consolidated profit 6,133 2,065 Other comprehensive income Retirement benefit obligations ,266 Share of other comprehensive income in associates and joint ventures Income tax Items that will not be reclassified to the income statement 363 1,113 Foreign exchange adjustments of foreign entities 4.1-2,754-3,842 Fair value adjustments of hedging instruments Income tax Items that may be reclassified to the income statement -3,309-4,122 Other comprehensive income -2,946-3,009 Total comprehensive income 3, Attributable to Non-controlling interests Shareholders in Carlsberg A/S 2,332-1,443 DKK Earnings per share 8.1 Earnings per share of DKK Diluted earnings per share of DKK

58 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 58 STATEMENT OF FINANCIAL POSITION DKK million Section 31 Dec Dec DKK million Section 31 Dec Dec ASSETS EQUITY AND LIABILITIES Non-current assets Intangible assets 2.2, ,868 67,793 Property, plant and equipment 2.2, ,394 24,325 Investments in associates and joint ventures 5.4 4,562 4,266 Receivables 1.5 1, Deferred tax assets 6.2 1,693 1,663 Total non-current assets 99,614 98,999 Equity Share capital ,051 3,051 Reserves -36,837-33,483 Retained earnings 79,088 77,362 Equity, shareholders in Carlsberg A/S 45,302 46,930 Non-controlling interests 2,587 2,595 Total equity 47,889 49,525 Current assets Inventories ,435 3,834 Trade receivables 1.5 5,084 4,611 Tax receivables Other receivables 1.5 1,925 2,138 Prepayments 840 1,026 Cash and cash equivalents ,589 3,462 Total current assets 18,086 15,252 Total assets 117, ,251 Non-current liabilities Borrowings 4.2, ,750 23,340 Retirement benefit obligations and similar obligations 7.4 2,908 3,351 Deferred tax liabilities 6.2 5,659 5,601 Provisions 3.2 3,827 3,611 Other liabilities 5.3 6,186 3,757 Total non-current liabilities 35,330 39,660 Current liabilities Borrowings 4.2, , Trade payables 16,199 13,474 Deposits on returnable packaging materials ,583 1,576 Provisions 3.2 1, Tax payables Other liabilities 7,488 7,645 Total current liabilities 34,481 25,066 Total liabilities 69,811 64,726 Total equity and liabilities 117, ,251

59 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 59 STATEMENT OF CHANGES IN EQUITY DKK million Section Shareholders in Carlsberg A/S 2018 Share capital Equity at 1 January 3,051-32, ,483 77,362 46,930 2,595 49,525 Consolidated profit ,309 5, ,133 Other comprehensive income - -3, , , ,946 Total comprehensive income for the year - -3, ,354 5,686 2, ,187 Acquisition/disposal of treasury shares Settlement of share-based payments Share-based payments Dividends paid to shareholders ,439-2, ,308 Non-controlling interests ,642-1, ,642 Acquisition of entities Total changes in equity - -3, ,354 1,726-1, ,636 Equity at 31 December 3,051-36, ,837 79,088 45,302 2,587 47,889 Currency translation Hedging reserves Total reserves Retained earnings Total Noncontrolling interests Total equity 2017 Equity at 1 January 3,051-29, ,691 77,451 50,811 2,839 53,650 Consolidated profit ,259 1, ,065 Other comprehensive income - -3, ,792 1,090-2, ,009 Total comprehensive income for the year - -3, ,792 2,349-1, Acquisition/disposal of treasury shares Settlement of share-based payments Share-based payments Dividends paid to shareholders ,525-1, ,263 Non-controlling interests Disposal of entities Total changes in equity - -3, , , ,125 Equity at 31 December 3,051-32, ,483 77,362 46,930 2,595 49,525

60 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 60 STATEMENT OF CASH FLOWS DKK million Section Operating profit before special items 9,329 8,876 Depreciation and amortisation 4,064 4,581 Impairment losses¹ Operating profit before depreciation, amortisation and impairment losses¹ 13,420 13,583 Other non-cash items Change in trade working capital 1, Change in other working capital² Restructuring costs paid Interest etc. received Interest etc. paid -1, Income tax paid -2,375-1,934 Cash flow from operating activities ,047 11,834 Acquisition of property, plant and equipment and intangible assets -4,017-4,053 Disposal of property, plant and equipment and intangible assets Change in on-trade loans² Total operational investments -3,955-3,853 Free operating cash flow 8,092 7,981 Acquisition and disposal of subsidiaries, net Acquisition and disposal of associates and joint ventures, net 5.2-1, Acquisition and disposal of financial investments, net 3 10 Change in financial receivables Dividends received Total financial investments -1, Other investments in property, plant and equipment Disposal of other property, plant and equipment - 25 Total other activities³ Cash flow from investing activities -5,891-3,154 Free cash flow 6,156 8,680 Shareholders in Carlsberg A/S ,489-1,681 Non-controlling interests , External financing ,239 Cash flow from financing activities -3,798-7,660 Net cash flow 2,358 1,020 Cash and cash equivalents at 1 January⁴ 3,120 2,348 Foreign exchange adjustment of cash and cash equivalents Cash and cash equivalents at 31 December⁴ ,434 3,120 1 Impairment losses excluding those reported in special items, cf. section Impacted by a reclassification of on-trade loans from other receivables of DKK 238m. 3 Other activities cover real estate, separate from beverage activities. 4 Cash and cash equivalents less bank overdrafts.

61 SECTION 1 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 61 OPERATING ACTIVITIES 62.5bn NET REVENUE (DKK) Net revenue grew by 3.0%, amounting to DKK 62,503m (2017: DKK 60,655m). The net revenue growth was positively impacted by an increase in volumes, a positive price/mix development and acquisitions, with adverse currency movements partly offsetting this impact. Net revenue growth (%) % 0.1% -3.6% 50.0% GROSS MARGIN Cost of goods sold per hl declined by approximately 3%, negatively impacted by higher input costs and mix, while positively impacted by currencies. The solid price/mix and ongoing efficiency improvements led to a gross margin improvement of 20bp to 50.0%. 9.3bn OPERATING PROFIT (DKK) Operating expenses were impacted by investments in the SAIL 22 priorities and grew by 2%. As a percentage of net revenue, operating expenses declined by 45bp. Excluding marketing expenses, operating expenses declined by 1%. Operating profit before special items was DKK 9,329m (2017: DKK 8,876m). The 5.1% growth was driven by organic growth of 11.0%, which was partly offset by a negative currency impact of 5.6% and a negative net acquisition impact of 0.3%. Western Europe and Asia delivered positive operating profit growth, while growth was flat in Eastern Europe, where 11.3% organic growth was offset by adverse currencies. Reported operating margin improved by 30bp to 14.9% (2017: 14.6%). Operating profit growth (%) % -0.3% -5.6% 6.1bn NET PROFIT (DKK) Special items, net, amounted to DKK -88m (2017: DKK -4,565m, impacted by impairment of the Baltika brand in Russia). Special items were particularly impacted by measures related to SAIL 22 initiatives in Western Europe. Tax totalled DKK -2,386m (2017: DKK -1,458m). The effective tax rate was 28.0% (2017: 41.4% but 29.0% adjusted for the aforementioned brand impairment). Consolidated profit was DKK 6,133m compared to DKK 2,065m in Consolidated profit was driven by operating profit growth, reduced special items, lower financial expenses and a lower effective tax rate compared with Non-controlling interests share of consolidated profit totalled DKK 824m (2017: DKK 806m). The Carlsberg Group s share of consolidated profit was DKK 5,309m (2017: DKK 1,259m).

62 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS EARNINGS PER SHARE (DKK) Earnings per share were DKK 34.8 (2017: DKK 8.3). Adjusted for special items after tax, earnings per share were DKK 35.2 (2017: DKK 32.3), corresponding to a 9% improvement. Earnings per share (DKK) bn FREE CASH FLOW (DKK) Free cash flow amounted to DKK 6,156m (2017: DKK 8,680m), while the operating free cash flow amounted to DKK 8,092m (2017: DKK 7,981m). The free cash flow included financial investments of DKK 1.9bn related to the Group s increased ownership in a number of subsidiaries and associates such as Cambrew in Cambodia and Super Bock in Portugal of DKK 2.5bn less dividends received from associates of DKK 0.6bn. Operating profit before depreciation, amortisation and impairment losses (EBITDA) grew organically by 3.6%. Reported EBITDA was adversely impacted by negative currency movements and declined by 1.2%. Restructuring costs paid amounted to DKK -238m (2017: DKK -364m). Net interest etc. paid amounted to DKK -863m (2017: DKK -408m). The payment was higher because 2017 benefited from a large positive impact from the settlement of financial instruments. Income tax paid was DKK -2,375m (2017: DKK -1,934m). The increase from 2017 was due to certain one-off tax payments and the consolidation of Cambrew in Cambodia. Cash flow from operating activities was DKK 12,047m against DKK 11,834m in Cash flow from investing activities was DKK -5,891m against DKK -3,154m in Operational investments totalled DKK -3,955m (2017: DKK -3,853m), while total financial investments amounted to DKK -1,926m (2017: DKK +674m) due to the acquisitions during the year. 1.2bn NON-CONTROLLING INTERESTS (DKK) Cash flow from acquisition of non-controlling interests in Olympic Brewery in Greece and Brewery Alivaria in Belarus amounted to DKK 355m, and dividends paid to non-controlling interests amounted to DKK 831m. Free cash flow (DKKbn) EPS EPS-A The strong operating cash flow was positively impacted by the change in trade working capital of DKK +1,908m (2017: DKK +848m). Average trade working capital to net revenue improved to -16.0% compared to -14.0% for 2017 (MAT). The change in other working capital was DKK +52m (2017: DKK +388m), positively impacted by a reclassification of certain on-trade loans of DKK 238m. Cash flow from other activities amounted to DKK -10m (2017: DKK +25m). Including acquisition of non-controlling interests, cf. below, cash flow to investments in entities amounted to DKK 2.8bn. 0 Free operating cash flow Free cash flow

63 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 63 SECTION 1.1 SEGMENTATION OF OPERATIONS REVENUE As of 1 January 2018, the Group implemented IFRS 15 Revenue from Contracts with Customers. Comparative figures for 2017 have been restated accordingly. The Group s net revenue arises primarily from the sale of beverages to our customers. Revenue from brand licensing, sale of byproducts and other revenue in aggregate accounts for around 1% of the Group s gross revenue and is not seen as a material source of revenue. Net revenue grew by DKK 1,848m in 2018 and was positively impacted by the increase in volumes, improved price/mix across the regions and the acquisition of Cambrew. Not allocated net revenue, DKK 42m (2017: DKK 70m), consisted of DKK 1,362m (2017: DKK 1,438m) net revenue and DKK -1,320m (2017: DKK -1,368m) from eliminations of sales between the geographical segments. Segmentation of income statement DKK million 2018 Western Europe Asia Eastern Europe Not allocated Beverages, total Nonbeverage Carlsberg Group, total Net revenue 36,151 15,530 10, ,503-62,503 Total cost -30,847-12,293-8,558-1,489-53, ,304 Share of profit after tax of associates and joint ventures Operating profit before special items 5,425 3,164 2,222-1,443 9, ,329 Special items, net Financial items, net Profit before tax 8, ,519 Income tax -2, ,386 Consolidated profit 6, ,133 Operating margin 15.0% 20.4% 20.6% 15.0% 14.9% 2017 Western Europe Asia Eastern Europe Not allocated Beverages, total Nonbeverage Carlsberg Group, total Net revenue 35,716 13,944 10, ,655-60,655 Total cost -30,754-11,088-8,705-1,377-51, ,041 Share of profit after tax of associates and joint ventures Operating profit before special items 5,144 2,905 2,220-1,307 8, ,876 Special items, net -4, ,565 Financial items, net Profit before tax 3, ,523 Income tax -1, ,458 Consolidated profit 2, ,065 Operating margin 14.4% 20.8% 20.3% 14.8% 14.6% Geographical allocation of net revenue DKK million Denmark (Carlsberg A/S domicile) 4,614 4,366 China 7,509 6,654 Russia 7,507 8,113 Other countries 42,873 41,522 Total 62,503 60,655 The DKK value of net revenue in Russia was impacted by the decrease in the average RUB/DKK rate of 11.2% in 2018.

64 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 64 SECTION 1.1 (CONTINUED) SEGMENTATION OF OPERATIONS OPERATING PROFIT BEFORE SPECIAL ITEMS Not allocated operating profit before special items, DKK -1,443m (2017: DKK -1,307m), consisted of DKK -1,381m (2017: DKK -1,242m) relating to central costs not managed by the regions, including costs of developing branding activities to support the SAIL 22 initiatives, general costs of headquarter functions and DKK -62m (2017: DKK -65m) from various eliminations. Compared with 2017, central costs increased due to investments in growth initiatives as part of SAIL 22. Group financial performance VOLUMES As of 1 January 2018, the Group decided to change the definition of volumes to include only the Group s sales of beverages in consolidated entities. Compared with 2017, the new definition thus excludes volumes in associates and joint ventures. Comparative figures for 2017 have been restated accordingly. Total volumes grew organically by 4.8%, driven by growth in all three regions. Reported volume growth was 5.3%, positively impacted by the increased ownership in Cambrew and negatively impacted by the fact that the German wholesaler Nordic Getränke, which was disposed of in April 2017, did not contribute to the reported volume in Change Change Volumes (million hl) 2017 Organic Acq., net FX 2018 Reported Beer % 0.5% % Other beverages % 0.8% % Total volume % 0.5% % DKK million Net revenue 60, % 0.1% -3.6% 62, % Operating profit before special items 8, % -0.3% -5.6% 9, % Operating margin (%) bp NON-CONTROLLING INTERESTS Non-controlling interests' share of profit for the year DKK million Lao Brewery Chongqing Brewery Group Carlsberg Malaysia Group Asia, other Other regions Total ACCOUNTING ESTIMATES AND JUDGEMENTS The Group considers all terms and activities in contracts with customers in order to determine the performance obligation, the transaction price and the allocation of the transaction price and, as a result, how revenue is recognised. If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring goods to the customer. The variable consideration is estimated at contract inception based on expected sales volumes using historical and yearto-date sales figures and other current information about trading with the individual customer or with a group of customers. The Group estimates discounts using either the expected value method or the most likely amount method depending on which method better predicts the amount of consideration to which it will be entitled. The most likely amount method is used for contracts with a single contract sum, while the expected value method is used for contracts with more than one threshold due to the complexity and the activities agreed with the individual customer during the year. Certain contracts related to specific major events which are held within such a short time period that it is not possible to sell all the goods during the event (e.g. football matches) provide the customer with a right to return the goods within a specified period. The Group uses the expected value method to estimate the goods that will not be returned, as this method best predicts the amount of variable consideration to which the Group will be entitled. For goods that are expected to be returned, the Group recognises a refund liability instead of revenue. Management makes judgements when deciding whether supporting activities with a customer should be classified as a discount or a marketing expense. Generally, marketing activities with the individual customer should be seen as a discount, whereas costs related to broader marketing activities are classified as marketing expenses. The classification of duties, taxes and fees paid to local authorities or brewery organisations etc. requires accounting estimates and judgements to be made by management. Locally imposed duties, taxes and fees are typically based on product type, alcohol content, consumption of certain raw materials, such as glue, plastic or metal in caps, and energy consumption. These are classified as either sales-related duties, and deducted from revenue, or as related to the input/use of goods in production, distribution etc., and recognised in the relevant line item. The type of authority or organisation imposing the duty, tax or fee and the objective of these are key factors when determining the classification. Whether the Group is acting as a principal or an agent is evaluated by management on a country-bycountry basis. The Group has concluded that it is the principal in its revenue arrangements because it controls the goods before transferring them to the customer.

65 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 65 SECTION 1.1 (CONTINUED) SEGMENTATION OF OPERATIONS ACCOUNTING POLICIES Revenue Revenue from contracts with customers comprises sales of goods, royalty income, rental income from non-stationary equipment, service fees and sales of by-products. Revenue from the sale of own-produced finished goods, goods for resale (third-party products) and by-products is recognised at the point in time when the control of goods and products is transferred to the customer, which is generally upon delivery. For contracts providing the customer with a right of return within a specified period, the Group considers the timing of recognition. Royalty and licence fees are recognised when earned according to the terms of the licence agreements. Revenue from contracts with customers is measured at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. Amounts disclosed as net revenue exclude discounts, VAT and other duties. Excise duties on beer and soft drinks are disclosed separately from revenue. The Group considers whether contracts include other promises that constitute separate performance obligations and to which a portion of the transaction price needs to be allocated. In determining the transaction price, the Group considers the effects of variable consideration. No element of financing is deemed present, as payment is generally made on the basis of cash on delivery or up to 30 days of credit. Variable consideration The Group pays various discounts and fees depending on the nature of the customer and business. Customer discounts comprise off-invoice discounts, volume- and activity-related discounts, including specific promotion prices offered, and other discounts. Furthermore, customer discounts include the difference between the present value and the nominal amount of on-trade loans to customers, cf. section 1.5. Off-invoice discounts arise from sales transactions where the customer immediately receives a reduction in the sales price. This also includes cash discounts and incentives for early payments. Volume- and activity-related discounts is a broad term covering incentives for customers to sustain business with the Group over a longer time and may be related to a current campaign or a sales target measured in volumes or total value. Examples include discounts paid as a lump sum, discounts for meeting all or certain sales targets or for exceeding targets, or progressive discounts offered in step with increasing sales to a customer. Other discounts include listing fees, i.e. fees for certain listings on shelves, in coolers or in favourable store locations, as such specific promotions are closely related to the volumes sold. Segment information The Group s beverage activities are segmented according to the three geographical regions where sales take place. These regions make up the Group s reportable segments. The non-beverage activities are managed separately and therefore not segmented geographically but shown separately. The segmentation reflects the geographical and strategic management, decision and reporting structure applied by the Executive Committee for monitoring the Group s strategic and financial targets. Segments are managed based on business performance measured as operating profit before special items. Not allocated comprises income and expenses incurred for ongoing support of the Group s overall operations, strategic development and driving efficiency programmes. The expenses include costs of running central functions and marketing, including global sponsorships. The geographical allocation of net revenue is based on the selling entities domicile and comprises countries individually accounting for more than 10% of the Group s consolidated net revenue as well as the domicile country. Decisions on restructurings, acquisition and divestment of entities included in special items as well as on financing (financial income and expenses) and tax planning (income tax) are made based on information for the Group as a whole and therefore not segmented. Reported figures Reported figures are analysed by looking at the impact of organic growth, net acquisitions and foreign exchange effects. The net acquisition effect is calculated as the effect of acquisitions and divestments, including any share obtained from an increase/decrease in ownership of associates and joint ventures, for a 12-month period from the acquisition/divestment date. The foreign exchange effect is the difference between the figures from the current reporting period translated at the exchange rates applying to the previous reporting period and the figures for the current reporting period translated at the current exchange rates. Organic growth is the remaining growth that is not related to acquisitions, divestments or foreign exchange effects.

66 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 66 SECTION 1.2 OPERATING EXPENSES, INVENTORIES AND DEPOSIT LIABILITIES COST OF SALES AND INVENTORIES Cost of sales increased by 3% and was affected by the organic increase in volumes across all three regions and by the acquisition of Cambrew. Organically, cost of sales per hl increased by approximately 1%, mainly due to higher input costs. Cost of sales DKK million Cost of materials 17,252 16,147 Direct staff costs 1,365 1,357 Amortisation and depreciation 2,849 3,263 Indirect production overheads 4,191 4,163 Purchased finished goods and other costs 5,626 5,517 Total 31,283 30,447 Inventories increased by 16% compared with 2017, impacted by inventory build-up prior to the festive season in Asia, which is earlier in 2019 than in 2018, and the consolidation of Cambrew. Cost of raw materials was furthermore impacted by the higher purchase price of grain in Inventories DKK million Raw materials 1,891 1,625 Work in progress Finished goods 2,236 1,940 Total 4,435 3,834 Commodity risks are associated in particular with purchasing of cans (aluminium), malt (barley) and energy. The management of commodity risks is coordinated centrally, and aimed at achieving stable and predictable prices in the medium term and avoiding capital and liquidity being tied up unnecessarily. As the underlying markets for the specified categories vary, so does the way in which they are hedged against price increases. The most common form of hedging is fixedprice purchase agreements in local currencies with suppliers. It is Group policy to fix the prices of 70% of malt (barley) purchases for a given year no later than at the end of the third quarter of the Hedging of raw material price risk DKK million 2018 % change previous year and to hedge up to around 90% early in the following year. The main part of the exposure for the Group for 2018 was therefore hedged through fixed-price purchase agreements entered into during Likewise, the majority of the exposure for 2019 was hedged during The percentage that is hedged or at fixed prices is higher for Western Europe and Eastern Europe than for Asia, which is partly due to the timing of the harvest season in the southern hemisphere. In the majority of purchase agreements for cans, the Group s purchase price is variable and based on the global market price of aluminium (London Metal Exchange, LME). The Group is thereby able to hedge the underlying aluminium price risk applying a hedge ratio of 1:1. In 2018, the majority of the aluminium price risk was hedged with financial instruments or with fixed prices via the suppliers to the Group. The same has been done for The fair values of the financial instruments are specified in section 4.8. Sensitivity assuming 100% efficiency Time of maturity Effect on OCI Tonnes purchased Average price (DKK) Aluminium 10% ,296 13,095 71,531 21, Aluminium 10% 93 66,424 13,066 66,424 - ACCOUNTING ESTIMATES AND JUDGEMENTS At least once a year, management assesses whether the standard cost of inventories approximates the actual cost. During the year, the standard cost is revised if it deviates by more than 5% from the actual cost. Management also assesses the impact on the standard cost of government and other grants received to fund operating activities. This includes assessing the terms and conditions of grants received and the risk of any repayment. Funding and grants are recognised in the income statement in the same period as the activities to which they relate. Indirect production overheads are calculated on the basis of relevant assumptions as to capacity utilisation, production time and other factors. The calculation of the net realisable value of inventories is relevant to packaging materials, pointof-sale materials and spare parts. The net realisable value is normally not calculated for beer and soft drinks due to their limited shelf-life, which means that slow-moving goods must be scrapped instead. ACCOUNTING POLICIES Cost of sales comprises cost of materials, including malt (barley), hops, glass, cans, other packaging materials, and indirect production costs. Purchased finished goods include cost of point-of-sale materials and third-party products sold to customers. Own-produced finished goods and work in progress are measured at standard cost comprising the cost of raw materials, consumables, direct labour and indirect production overheads. Indirect production overheads comprise indirect supplies, wages and salaries, amortisation of brands and software, as well as maintenance and depreciation of machinery, plant and equipment used for production.

67 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 67 SECTION 1.2 (CONTINUED) OPERATING EXPENSES, INVENTORIES AND DEPOSIT LIABILITIES The cost of purchased finished goods, raw and packaging materials and point-of-sale materials includes any costs that are directly related to bringing inventories to the relevant place of sale and getting them ready for sale, for example purchase cost, insurance, freight, duties and similar costs. Inventories are measured at the lower of standard cost (own-produced finished goods) and weighted average cost (other inventories), or net realisable value. The net realisable value is the estimated selling price less costs of completion and costs necessary to make the sale, also taking into account marketability, obsolescence and developments in expected selling price. The cost of scrapped/impaired goods is expensed in the function (line item) responsible for the loss, i.e. losses during distribution are included in distribution expenses, while scrapping of products due to sales not meeting forecasts is included in sales expenses. deposit value to be set lower than the cost of the returnable packaging materials. ACCOUNTING ESTIMATES AND JUDGEMENTS Management assesses the local business model to determine whether the Group has a legal or constructive obligation to accept returns of returnable packaging materials from the market and, accordingly, the level of control over returnable packaging materials. Returnable packaging materials controlled by the Group are capitalised as property, plant and equipment and depreciated over the expected useful life. This entails the Group considering, among others, the return rate and the annual circulation in the individual markets. These factors are assessed annually. The deposit on returnable packaging materials is estimated based on movements during the year in recognised liabilities, loss of returnable packaging materials in the market, planned changes in packaging types and historical information about return rates. ACCOUNTING POLICIES SALES AND DISTRIBUTION EXPENSES Sales and distribution expenses increased by 2% in reported terms and by 5% organically. The reported figure was impacted by higher marketing expenses related to investments in the SAIL 22 priorities. However, the impact was partly offset by a decrease in distribution expenses of approximately 5%, which was mainly driven by a change in the UK logistics set-up during Sales and distribution expenses DKK million Marketing expenses 5,345 4,730 Sales expenses 5,849 5,815 Distribution expenses 6,280 6,599 Total 17,474 17,144 ACCOUNTING POLICIES Marketing expenses consist of expenses for brand marketing and trade marketing OTHER OPERATING ACTIVITIES, NET Other operating activities are secondary to the principal activities of the Group and include income and expenses relating to rental properties, restaurants, on-trade loans, research activities, and gains and losses on the disposal of intangible assets and property, plant and equipment. Other operating activities, net DKK million Gains and losses on disposal of property, plant and equipment and intangible assets, net On-trade loans, net Real estate, net Research centres, net Other, net Total ACCOUNTING POLICIES DEPOSITS ON RETURNABLE PACKAGING MATERIALS Deposits on returnable packaging materials amounted to DKK 1,583m (2017: DKK 1,576m). The capitalised value of returnable packaging materials was DKK 1,898m (2017: DKK 1,855m). The capitalised value of returnable packaging materials exceeds the deposits because each of the returnable packaging items circulates a number of times in the market and some markets have regulations that require the Returnable packaging materials that the Group controls through a legal or constructive obligation are capitalised as property, plant and equipment. Returnable packaging materials are depreciated over 3-10 years. The accounting policies for property, plant and equipment are further described in section 2.3. The obligation to refund deposits on returnable packaging materials is measured on the basis of deposit price, an estimate of the number of bottles, kegs, cans and crates in circulation, and expected return rates. Brand marketing is an investment in the Group s brands and consists of brand-specific investments in the development of communication vehicles, the use of these to drive the sale of branded products, sales campaigns and sponsorships. Trade marketing is promotional activities directed towards customers, such as the supply of point-ofsale materials, promotional materials and trade offers. Sales expenses comprise costs relating to general sales activities, write-downs for bad debt losses, wages and salaries as well as depreciation and impairment of sales equipment. Distribution expenses comprise costs incurred in distributing goods, wages and salaries, and depreciation and impairment of distribution equipment. Gains and losses on disposal of intangible assets and property, plant and equipment are determined as the sales price less selling costs and the carrying amount at the disposal date. On-trade loans, net, comprise the effective interest on the loans measured at amortised cost less impairment. Expenses relating to research activities comprise research in Denmark and France less funding received from the Carlsberg Foundation for the operation of the Carlsberg Research Laboratory and grants received to fund research. The funding and grants are recognised in the income statement in the same period as the activities to which they relate. Product development costs are included in cost of sales.

68 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 68 SECTION 1.3 FOREIGN EXCHANGE RISK RELATED TO EARNINGS A significant part of the Group s activities takes place outside Denmark and in currencies other than DKK. Foreign exchange risk is therefore a principal financial risk for the Group, and exchange rate fluctuations can have a significant impact on the income statement. TRANSACTION RISKS ON PURCHASES AND SALES The Group is exposed to transaction risks on purchases and sales in currencies other than the local functional currencies. It is the Group s intention to hedge 70-90% of future cash flows in currencies other than the local functional currency on a four-quarter rolling basis. Western Europe For the entities in Western Europe, a major part of the purchases in foreign currencies is in EUR. Hedging of EUR against the local currencies will effectively eliminate a significant part of the currency risk in the entities operating profit in local currency. At Group level, these hedges are effectively an economic hedge of (parts of) the net revenue in the relevant currency, and they are accounted for as cash flow hedges, cf. section 4.8. The EUR/DKK exposure is considered to be limited and is not hedged. Asia The transaction risk is considered to be less significant compared with the risk in the other regions because of the lower sales and purchases in currencies other than the local functional currencies as well as the high correlation between USD and most of the Asian currencies. As a consequence, the risk is not hedged. Eastern Europe Baltika Breweries and the other entities in Eastern Europe have expenses in both USD and EUR, and appreciation of the RUB and other currencies vis-à-vis EUR and USD has a positive impact on operating profit, while depreciation has a negative effect. The Group has chosen not to systematically hedge the transaction risk in Eastern Europe to the same degree as in Western Europe due to the significant cost of hedging these currencies over a longer period of time. For 2018 and 2019, the Group has chosen to hedge a portion of Baltika Breweries expenses in USD. The volatility of the Eastern European currencies will continue to affect operating profit measured in both DKK and local currencies. TRANSLATION RISK The Group is exposed to risk from translation of foreign entities into the Group s presentation currency, DKK. The Group s single largest exposure in respect of operating profit continued to be the exposure to RUB. The exposure to fluctuations in EUR/DKK is considered to be limited due to Denmark s fixed exchange rate policy towards EUR and is consequently not hedged. The Group has chosen not to hedge the exposure arising from translation of revenue or earnings in foreign currencies, but some of the Group s debt is denominated in currencies in which the Group generates significant earnings and cash flow. Net revenue by functional currency (%) 2018 (2017) EUR 20% (20%) RUB 12% (13%) CNY 12% (12%) DKK 10% (10%) GBP 6% (6%) CHF 6% (6%) NOK 6% (6%) Other 28% (27%) Impact on operating profit Developments in exchange rates between DKK and the functional currencies of foreign entities had a negative impact on operating profits from all regions measured in DKK. At Group level, the negative net impact was 5.6%, of which the contribution from RUB was around 2%. Entities in Functional currency Change in average FX rate 2017 to 2018 Countries in the eurozone EUR 0.19% Russia RUB % China CNY -2.10% United Kingdom GBP -0.80% Switzerland CHF -3.80% Norway NOK -2.30% Sweden SEK -5.90% Laos LAK -7.20%

69 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 69 SECTION 1.4 CASH FLOW FROM OPERATING ACTIVITIES Change in trade working capital amounted to DKK 1,908m (2017: DKK 848m) and was driven by higher trade payables in all regions, partly from increased volumes and focused cash discipline combined with the acquisition of Cambrew. The decrease in other working capital amounted to DKK 52m (2017: DKK 388m). Other working capital was positively affected by a reclassification from prepaid costs to ontrade loans of DKK 238m. Average trade working capital (% of net revenue) Trade payables incl. deposits and duties Trade working capital incl. deposits and duties Inventories Trade receivables The change in on-trade loans amounted to DKK -192m (2017: DKK 40m), affected by the same reclassification. Restructuring costs paid amounted to DKK -238m (2017: DKK -364m), a large part of which relates to termination benefits to employees made redundant due to optimisation in a number of markets, including France and the UK. Net interest etc. paid amounted to DKK -863m (2017: DKK -408m). The increase in interest paid was driven by the liquidity effect from settlements of financial instruments, with EUR/USD and EUR/RUB foreign exchange swaps as the largest items. In 2018, the effect amounted to DKK -207m, while it was positive at DKK 491m in Income tax paid amounted to DKK -2,375m (2017: DKK -1,934m). The increase in tax paid was mainly the result of a property sale in Germany and reduced taxes paid in France in 2017 due to refund of on-account tax paid in Average trade working capital improved from -14.0% to -16.0% of net revenue primarily due to higher trade payables. The calculation of average trade working capital, as a percentage of net revenue, has been impacted by the implementation of IFRS 15, which lead to a reduction of net revenue. Comparative figure for 2017 has been restated. Other specifications of cash flow from operating activities DKK million Section Other non-cash items Share of profit after tax of associates and joint ventures Gain on disposal of property, plant and equipment and intangible assets, net Share-based payments Other items Total Trade working capital Inventories Trade receivables Trade payables, duties payable and deposits on returnable packaging materials 2, Total 1, Other working capital Other receivables Other payables Retirement benefit obligations and other liabilities related to operating profit before special items Unrealised foreign exchange gains/losses Total On-trade loans Loans provided Repayments Amortisation of on-trade loans Total

70 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 70 SECTION 1.5 TRADE RECEIVABLES AND ON-TRADE LOANS Receivables included in the statement of financial position DKK million Trade receivables 5,084 4,611 Other receivables 1,925 2,138 Total current receivables 7,009 6,749 Non-current receivables 1, Total 8,106 7,701 The Group s non-current receivables consist mainly of on-trade loans that fall due more than one year from the reporting date. Of the total non-current receivables, DKK 171m (2017: DKK 188m) falls due more than five years from the reporting date. Ageing of receivables 2018 Net carrying amount at 31 Dec. Receivables by origin DKK million Sale of goods and services 4,605 4,203 On-trade loans 1,451 1,251 Other receivables 2,050 2,247 Total 8,106 7,701 In 2018, on-trade loans increased due to a reclassification of certain prepaid discounts of DKK 238m from other receivables, which in turn declined. The carrying amount of receivables approximates their fair value. For on-trade loans, the fair value is calculated as discounted cash flows using the interest rate at the reporting date. Neither impaired nor past due Past due less than 30 days Past due between 30 and 90 days Past due more than 90 days Weighted average loss rate, trade receivables 0.2% 2.7% 9.2% 100.0% ON-TRADE LOANS Under certain circumstances, the Group grants loans to on-trade customers in France, the UK, Switzerland, Germany and Sweden. On-trade loans are spread across a large number of customers/debtors and consist of several types of loan, including loans repaid in cash or through reduced discounts, prepaid discounts and guarantees for loans provided by third parties, cf. section 3.3. The operating entities monitor and control these loans in accordance with Group guidelines. On-trade loans recognised in other operating activities, net DKK million Interest and amortisation of on-trade loans Losses and write-downs on on-trade loans On-trade loans, net The average effective interest rate on loans to the on-trade was 3.6% (2017: 4.1%). DKK million Sale of goods and services 4,605 3, On-trade loans 1,451 1, Other receivables 2,050 1, Total 8,106 7, Total ,701 6,

71 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 71 SECTION 1.5 (CONTINUED) TRADE RECEIVABLES AND ON-TRADE LOANS CREDIT RISK In 2018, 87% (2017: 87%) of the total receivables were neither impaired nor past due. Receivables in Poland decreased due to trade receivable improvements, while receivables in France increased due to the reclassification of on-trade loans and a worsening of the trade receivables balance. Furthermore, translated into DKK, the proportionate shares of the receivables have changed due to differences in the currencies development against DKK. The impairment losses are related to several minor customers that have in different ways indicated that they do not expect to be able to pay their outstanding balances, mainly due to adverse economic developments. Development in impairment losses on receivables Trade receivables and on-trade loans (Broken down by country) 2018 (2017) France 14% (7%) Russia 11% (12%) Finland 8% (2%) UK 9% (11%) Switzerland 7% (9%) Germany 8% (8%) Poland 5% (8%) Other 38% (43%) DKK million Trade receivables¹ On-trade loans² Other receivables² Total Total Impairment at 1 January ,043-1,012 Impairment losses recognised Realised impairment losses Reversed impairment losses Disposal of entities Foreign exchange adjustments Impairment at 31 December ,043 ACCOUNTING ESTIMATES AND JUDGEMENTS On-trade loan agreements are complex, cover several aspects of the customer relationship and may vary from agreement to agreement. Management assesses the recognition and classification of income and expenses for each agreement, including the allocation of payments from the customer between revenue, discounts, interest (other operating activities) and repayment of the loan. Management also assesses whether developments in local conditions for on-trade customers should impact the expected credit losses both individually and on a portfolio basis. Exposure to credit risk on receivables is managed locally, and credit limits are set as deemed appropriate for the customer, taking into account the current local market conditions. The local entities assess the credit risk and adhere to Group guidelines, which include setting credit limits, encouraging cash payment, purchasing credit insurance and taking collateral. In assessing credit risk, management analyses the need for impairment of trade receivables and ontrade loans due to customers inability to pay. Management assesses the expected credit losses (ECL) for portfolios of receivables based on customer segments, historical information on payment patterns, terms of payment, concentration maturity, and information about the general economic situation in the countries. The portfolios are based on on-trade and off-trade customers, and on-trade receivables and loans. On-trade loans carry a higher risk than trade receivables and are concentrated in a few markets. The local entities manage and control these loans in accordance with Group guidelines. The credit risk on on-trade loans can be reduced through collateral and pledges of on-trade movables (equipment in bars, cafés etc.). The fair value of the pledged on-trade movables cannot be estimated reliably but is assessed to be insignificant, as the movables cannot readily be used again. ACCOUNTING POLICIES Receivables are recognised initially at fair value and subsequently measured at amortised cost less loss allowance or impairment losses. Trade receivables comprise sale of goods and services as well as shortterm on-trade loans to customers. Other receivables comprise VAT receivables, loans to partners, associates and joint ventures, interest receivables and other financial receivables. Regarding the on-trade loans, any difference between the present value and the nominal amount at inception is treated as a prepaid discount to the customer, and is recognised in the income statement in accordance with the terms of the agreement. The market interest rate is used as the discount rate, corresponding to the money market rate based on the maturity of the loan with the addition of a risk premium. The effective interest on these loans is recognised in other operating activities, net. The amortisation of the difference between the discount rate and the effective interest rate is included as a discount in revenue. The Group applies the simplified approach to measure expected credit losses. This entails recognising a lifetime expected loss allowance for all trade receivables. Loss rates are determined based on grouping of trade receivables sharing the same credit risk characteristics and past due days. Regarding on-trade loans and loans to associates, a loss allowance is recognised based on 12-month or lifetime expected credit losses, depending on whether a significant increase in credit risk has arisen since initial recognition. 1 Lifetime expected credit loss month expected credit loss, except for an insignificant share that is a lifetime expected credit loss.

72 SECTION 2 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 72 ASSET BASE AND RETURNS 117.7bn TOTAL ASSETS (DKK) Total assets increased by DKK 3.4bn, due to an increase in property, plant and equipment, inventories, trade receivables and an improved cash position. Intangible assets amounted to DKK 66.9bn at 31 December 2018 (2017: DKK 67.8bn), impacted among other things by the depreciation of the Russian rouble and Asian currencies. Asset base 1 (DKKm) Property, plant and equipment increased by DKK 1.1bn to DKK 25.4bn (2017: DKK 24.3bn), impacted by new investments and the consolidation of Cambrew. Current assets increased by DKK 2.8bn to DKK 18.1bn, driven by increases in inventories of raw materials and finished goods, and trade receivables, in total amounting to DKK 1.1bn, and an increase in cash and cash equivalents of DKK 2.1bn. The DKK 0.6bn increase in inventories was caused by the inventory buildup prior to the festive season in Asia, which is earlier in 2019 than in 2018, and the consolidation of Cambrew. The increase in cash and cash equivalents to DKK 5.6bn was due to the strong free cash flow. 4.0bn CAPEX (DKK) CapEx included construction of the new greenfield brewery in Germany, completion of a new brewery in India and various sales equipment. The greenfield brewery in Germany is expected to be completed by the end of The positive effect on ROIC from the relatively low CapEx is partly offset by the increase in the ratio of CapEx to amortisation and depreciation to 98% (2017: 86%). CapEx and amortisation/ depreciation (DKKbn) 6 8.1% ROIC Return on invested capital (ROIC) increased by 120bp to 8.1%, impacted by lower invested capital, improved profitability and a lower effective tax rate. ROIC excluding goodwill increased by 520bp to 20.9%, with improvements achieved in all regions. The impairment loss on the Baltika brand recognised at year-end 2017 had a full-year impact on the average invested capital for For 2017, ROIC would have been 7.2%, compared to the reported 6.9%, if the loss had been recognised at 1 January Return on invested capital (ROIC) (%) 92,118 7,229-3,030-4, , The asset base represents the total investment in intangible assets and property, plant and equipment. CapEx Amortisation and depreciation ROIC ROIC excl. goodwill

73 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 73 SECTION 2.1 SEGMENTATION OF ASSETS AND RETURNS Invested capital was down by DKK 1.8bn, affected by an increase in assets included of DKK 1.6bn, which was primarily driven by investments in associates and higher trade receivables and inventories. The increase was more than offset by the increase in trade payables. In 2017, invested capital was also impacted by the DKK 4.8bn impairment of the Baltika brand. The negative impact on total assets from foreign exchange rates attributed to Russia is DKK 4.2bn, compared with the DKK value they would have had if they had been translated at the exchange rates applied at year-end Non-current assets comprise intangible assets and property, plant and equipment owned by the segment/country, even if the income is earned outside the segment/country that owns the asset. Furthermore, they include noncurrent financial assets other than financial instruments and deferred tax assets. Geographical allocation of non-current assets DKK million Denmark (Carlsberg A/S' domicile) 3,104 3,905 Russia 21,578 24,949 China 14,152 14,466 Other countries 57,990 53,064 Total 96,824 96,384 Not allocated comprises supporting companies without brewing activities and eliminations of investments in subsidiaries, receivables and loans. ACCOUNTING ESTIMATES AND JUDGEMENTS The calculation of return on invested capital (ROIC) uses operating profit before special items adjusted for tax using the effective tax rate, and invested capital including assets held for sale and trade receivables sold, and excludes contingent considerations and income tax. ACCOUNTING POLICIES The Group s assets and returns are segmented on the basis of geographical regions in accordance with the management reporting for the current year, cf. section 1.1. Invested capital Segmentation of assets and returns DKK million Total assets 117, ,251 Less Deferred tax assets -1,693-1,663 Financial receivables, hedging instruments and receivables sold 1,660 1,386 Cash and cash equivalents -5,589-3,462 Assets included 112, ,512 Trade payables -16,199-13,474 Deposit on returnable packaging materials -1,583-1,576 Provisions, excl. restructurings -4,546-3,709 Other liabilities, excl. hedging instruments -7,029-7,265 Liabilities offset -29,357-26,024 Invested capital 82,721 84,488 Goodwill -50,929-50,497 Invested capital excl. goodwill 31,792 33,991 Invested capital, average 82,590 91,668 DKK million 2018 Western Europe Asia Eastern Europe Not allocated Beverages, total Nonbeverage Carlsberg Group, total Invested capital 38,254 21,090 23,976-1,696 81,624 1,097 82,721 Invested capital excl. goodwill 17,440 5,040 9,911-1,696 30,695 1,097 31,792 Acquisition of property, plant and equipment and intangible assets 1,948 1, , ,027 Amortisation and depreciation 1,725 1, , ,064 Impairment losses Return on invested capital (ROIC) 10.8% 11.8% 7.0% - 8.2% - 8.1% ROIC excl. goodwill 24.4% 44.0% 17.1% % % 2017 Invested capital 37,218 20,131 27,376-1,055 83, ,488 Invested capital excl. goodwill 16,489 6,197 11,542-1,055 33, ,991 Acquisition of property, plant and equipment and intangible assets 1,837 1, , ,053 Amortisation and depreciation 1,872 1, , ,581 Impairment losses ,820-4,814-4,814 Return on invested capital (ROIC) 9.9% 9.9% 5.1% - 7.0% - 6.9% ROIC excl. goodwill 21.9% 31.2% 10.2% % %

74 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 74 SECTION 2.2 IMPAIRMENT RECOGNISED IMPAIRMENTS In 2018, the impairment tests of goodwill and brands with indefinite useful life were prepared at the reporting date without this leading to recognition of impairment losses. In 2017, the Group recognised impairment losses on brands amounting to DKK 4,847m, of which DKK 4,800m related to the Baltika brand. During the year, impairment losses of DKK 116m (2017: DKK 183m) relating to property, plant and equipment were recognised. The impairment losses in 2018 primarily related to steel keg installations and filling lines in the Nordic countries, which were impacted by the roll-out of the one-way keg system DraughtMaster TM. In addition, impairment losses were recognised as a result of the closure of breweries in China. Impairment of brands and other non-current assets In 2017, impairment losses were recognised as a result of restructurings and other events. In 2018, the Group recognised reversals of impairments in Eastern Europe of DKK 49m relating to assets previously impaired that have been brought back into production. In 2017, the Group recognised reversal of impairments in Eastern Assets of other intangible assets amounting to DKK 80m and of plant and equipment amounting to DKK 136m, as the change in use of the two breweries was expected to generate future cash flows resulting in the recoverable amount exceeding that of the carrying amount of land use rights and plant and equipment had it not been written down in DKK million Brands and other intangible assets Brands - 4,847 Land use rights (reversal of impairment) Total - 4,767 Property, plant and equipment Plant, machinery and equipment Plant, machinery and equipment (reversal of impairment) Total Total impairment losses 67 4,814 Of which recognised in special items, net, cf. section ,688 Significant amounts of goodwill and brands Goodwill and brands with indefinite useful life relating to Baltika Breweries, Kronenbourg, Chongqing Brewery Group, and the acquisition of the 40% non-controlling interest in Carlsberg Breweries A/S each account for 10% or more of the total carrying amount of goodwill and brands with an indefinite useful life at the reporting date. ACCOUNTING ESTIMATES AND JUDGEMENTS Identification of cash-generating units The Group s management structure reflects the geographical segments, cf. section 1.1, and decisions are made by the regional managements responsible for performance, operating investments and growth initiatives in their respective regions. There is significant vertical integration of the production, logistics and sales functions, supporting and promoting optimisations across the Group or within regions. Assets, other than goodwill and brands with regional and global presence, are allocated to individual cashgenerating units (CGUs), being the level at which the assets generate largely independent cash inflows. As the Group operates with local sales and production organisations, the cash inflows are generated mostly locally, and the CGUs are therefore usually identified at country level. Cash inflows are assessed in connection with acquisitions and the related purchase price allocation, and the determination of CGU allocation is made within 12 months from the date of acquisition. Goodwill Goodwill does not generate largely independent cash inflows on its own and is therefore allocated to the level at which it is monitored for internal management purposes, normally at regional or subregional level. Goodwill allocated to CGUs that are less integrated in regions or sub-regions is tested separately. However, these are not considered significant compared with the carrying amount of goodwill. The following groups of CGUs are considered significant compared with the carrying amount of goodwill: Western Europe China, Malaysia and Singapore Cambodia, Laos and Vietnam Eastern Europe The structure and groups of CGUs are reassessed every year. In 2018, the Group gained control of Cambrew Group, Cambodia, cf. section 5.2. The goodwill recognised on the acquisition was allocated to the CGU that also comprises the Group s activities in Vietnam and Laos. Brands Cash flows for brands are separately identifiable, and these are therefore tested individually for impairment. This test is performed in addition to the test for impairment of goodwill. The following brands are considered significant when comparing their carrying amount with the carrying amount of brands with indefinite useful life: Baltika brand International brands International brands is a group of brands recognised in connection with the acquisition of the 40% noncontrolling interest in Carlsberg Breweries A/S and allocated to Western Europe. The amount is not allocated to individual brands. Corporate assets The Group has identified capitalised software relating to the Group s ERP systems as corporate assets, and as such, these are peripheral to the generation of cash inflow. The Group s ERP landscape is closely linked to the internal management structure, and the identified assets are therefore tested for impairment at the CGU level to which goodwill is allocated.

75 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 75 SECTION 2.2 (CONTINUED) IMPAIRMENT Other non-current assets Other non-current assets are tested for impairment when indications of impairment exist. For property, plant and equipment, management performs an annual assessment of the assets future application, for example in relation to changes in production structure, restructurings or closing of breweries. For investments in associates and joint ventures, examples of indications of impairment are lossmaking activities or major changes in the business environment. ACCOUNTING POLICIES Goodwill and brands with indefinite useful life are subject to an annual impairment test, performed initially before the end of the year of acquisition. The test is performed at the level where cash flows are considered to be generated; either at CGU level or at the level of a group of CGUs. All assets are tested if an event or circumstance indicates that the carrying amount may not be recoverable. If an asset s carrying amount exceeds its recoverable amount, an impairment loss is recognised. The recoverable amount is the higher of the asset s fair value less costs of disposal and its value in use. For all assets, the value in use is assessed based on budget and target plan with reference to the expected future net cash flows. The assessment is based on the lowest CGU affected by the changes that indicate impairment. The cash flow is discounted by a discount rate adjusted for any risk specific to the asset, if relevant to the applied calculation method. Impairment losses on goodwill and brands, significant losses on property, plant and equipment, associates and joint ventures, and losses arising on significant restructurings of processes and structural adjustments are recognised as special items. Minor losses are recognised in the income statement in the relevant line item. Impairment of goodwill is not reversed. Impairment of other assets is reversed only to the extent of changes in the assumptions and estimates underlying the impairment calculation. Impairment is only reversed to the extent that the asset s new carrying amount does not exceed the carrying amount of the asset after amortisation/depreciation had the asset not been impaired IMPAIRMENT TEST OF GOODWILL The carrying amount of goodwill allocated to groups of CGUs DKK million Western Europe 20,814 20,729 China, Malaysia and Singapore 9,391 9,424 Cambodia, Laos and Vietnam 6,110 3,941 Eastern Europe 14,065 15,834 Significant groups of CGUs 50,380 49,928 Other, Asia Total 50,929 50,497 In 2018 and 2017, the significant groups of CGUs represented 99% of the total carrying amount. The estimation of the expected cash flow involves developing multiple probabilityweighted scenarios to reflect different outcomes in terms of timing and amount. The measurement of the forecast period growth rates reflects risk adjustments made to calculate the expected cash flows. Key assumptions 2018 Forecast cash flow growth Terminal period growth Pre-tax discount rate Western Europe -8% 0.3% 1.3% China, Malaysia and Singapore -8% 1.0% 4.4% Cambodia, Laos and Vietnam -6% 0.5% 2.7% Eastern Europe -14% 4.0% 7.5% The average cash flow growth in the forecast period reflects the significant risk adjustments included in the forecast specifically for the impairment test. The risk adjustment considers only negative alternative scenarios to account for the uncertainty related to the benefits expected from the strategic initiatives in SAIL 22 in Western Europe, the development in beer consumption in Asia and particularly in China, and the volatile macroeconomic situation in Eastern Europe. Potential upsides are not identified and adjusted in the cash flows used for impairment testing. The growth is projected in nominal terms and therefore does not translate into cash flow at the same growth rate in the Group s presentation currency, DKK. WESTERN EUROPE The region primarily comprises mature beer markets. While market volumes tend to be flat, the overall value of the region has seen a positive, albeit small, development in recent years. This has been driven by improving beer category dynamics through innovations, increased interest in craft & speciality beers and alcohol-free brews, and an overall improved category perception. The region is generally characterised by wellestablished retail structures and a strong tradition of beer consumption. The consumption is generally resilient but the ontrade tends to suffer in a weak macroeconomic environment. The focus is on improving margins by driving a positive price/mix development and reducing the cost base across the value chain. This process has been started by the initiatives in SAIL 22. ASIA The importance of Asia for the Group has increased significantly over the past decade, during which the Group has expanded its presence in the region, both organically and through acquisitions. The Asian markets are very diverse but offer considerable prospects for value growth, underpinned by young populations, urbanisation, rising disposable income levels, growing economies and, in some markets, relatively low per capita beer consumption. However, as many Asian markets are emerging markets, development is subject to volatility. Both the on-trade and off-trade channels are characterised by a strong traditional outlet segment but with the modern outlet segment growing in most markets. The focus is to continue the revenue growth trajectory in the region. Activities include the

76 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 76 SECTION 2.2 (CONTINUED) IMPAIRMENT continued expansion of our international premium brands, in particular Tuborg, and the strengthening and premiumisation of our local power brands in combination with a continued focus on costs and efficiencies. EASTERN EUROPE The two main markets in the region are Russia and Ukraine, which account for around 65% and 20% respectively of regional beer volumes. The Russian beer market has been under significant pressure in the past decade, more recently due to challenging macroeconomic conditions and a ban on individual PET bottles larger than 1.5 litres. In 2018, however, the market was positively impacted by the football world cup and warmer weather. In recent years, the modern off-trade, consisting of hypermarkets and supermarkets, has grown significantly and now accounts for approximately 50% of the market in Russia. Another growing channel is the so-called DIOT draught in off-trade which is estimated to account for around 10-15% of the market. The Ukrainian beer market has shown small positive growth rates in 2017 and 2018 following the previous years decline due to the severe macroeconomic slowdown. The focus for Eastern Europe is to continue to strengthen our business in local currencies and mitigate the negative earnings impact from the weakening currencies. Actions include a commercial agenda with clear priorities as well as a continued focus on costs and efficiencies. Management expects the current macroeconomic situation and developments to continue in the short term, with inflation stabilising at the current level and, in the medium to long term, with interest rates expected to decline and stabilise at a level lower than currently observed in the market. This will ease the pressure on profitability from input costs denominated in foreign currencies. ACCOUNTING ESTIMATES AND JUDGEMENTS Goodwill The value in use is the discounted value of the expected future risk-adjusted cash flows. This involves developing multiple probability-weighted scenarios to reflect different outcomes in terms of timing and amount. Key assumptions The cash flow is based on the budget and target plans for the next three years. Cash flows beyond the three-year period are extrapolated using the terminal period growth rate. The probability weighting applied is based on past experience and the uncertainty of the prepared budget and target plans. Potential upsides and downsides identified during the budget process and in the daily business are reflected in the future cash flow scenarios for each CGU. The risk-adjusted cash flows are discounted using a discount rate reflecting the risk-free interest rate for each CGU with the addition of a spread. The interest rates used in the impairment tests are based on observable market data. Please refer to the description of discount rates in section The key assumptions on which management bases its cash flow projections are: Volumes Sales prices Input costs Operating investments Terminal period growth The assumptions are determined at CGU level and are based on past experience, external sources of information and industry-relevant observations for each CGU. Local conditions, such as expected development in macroeconomic and market conditions specific to the individual CGUs, are considered. The assumptions are challenged and verified by management at CGU and Group level. The budget and target plan process takes into account events or circumstances that are relevant in order to reliably project the short-term performance of each CGU. Examples include significant campaign activities, changes in excise duties etc., which may have a short-term impact but are non-recurring. Given their short-term nature, they are not taken into consideration when estimating the terminal period growth rate. Volumes Projections are based in part on past experience and external market data, and include planned commercial initiatives, such as marketing campaigns and sponsorships, and the expected impact on consumer demand and the level of premiumisation. The projections are, if relevant, adjusted for the expected changes in the level of premiumisation. No changes in market shares are assumed in the medium or long term. Demographic expectations general to the industry, such as the development in population, consumption levels, generation-shift patterns, rate of urbanisation as well as macroeconomics etc., are also considered for medium- and long-term projections. Events and circumstances can impact the timing of volumes entering the market. This can be affected by excessive stocking related to an increase in excise duties, campaign activities and the timing of national holidays and festivals. Such short-term effects are not material to volume projections and do not impact the long-term projections. Sales prices The level of market premiumisation and the locally available portfolio are key drivers in identifying price points. When planning pricing structures, factors including price elasticity, local competition and inflation expectations can also impact the projection. Increases in excise duties are typically passed on to the customers with a delay of a few months. Since the increase is a pass-through cost and thereby compensated for by price increases at the time of implementation, it does not impact the long-term sales price growth and is therefore not taken into consideration in the projections unless circumstances specifically indicate otherwise. No changes to duties in the short or medium term are taken into consideration unless there is a firm plan to introduce changes. Input costs Input costs in the budget and target plans are based on past experience and on: Contracted raw and packaging materials Contracted services within sales, marketing, production and logistics Planned commercial investments Cost optimisations not related to restructurings Expected inflation In the long term, projections follow the level of inflation unless long-term contracts are in place. Operating investments Projections are based on past experience of the level of necessary maintenance of existing production capacity, including replacement of parts. This also includes planned production line overhauls and improvements to existing equipment. Non-contracted capacity increases and new equipment are not included. Terminal period growth Growth rates are projected to be equal to or below the expected rate of general inflation and assume no nominal growth. The projected growth rates and the applied discount rates are compared to ensure a sensible correlation between the two.

77 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 77 SECTION 2.2 (CONTINUED) IMPAIRMENT IMPAIRMENT TEST OF BRANDS Significant brands with indefinite useful life DKK million Baltika brand 5,585 6,425 International brands 3,000 3,000 Significant brands 8,585 9,425 In 2018, significant brands represented 60% (2017: 62%) of the total carrying amount of brands with indefinite useful life. Other brands comprise a total of 17 brands that are not considered individually material compared with the total carrying amount. BALTIKA BREWERIES In 2018, the Russian beer market grew slightly after having experienced a continuous decline in recent years due to very challenging macroeconomic conditions. The Baltika brand performed in line with the growth projections made when the expected future growth for the brand was reassessed in Compared with previous years, the brand s decline has stopped, and moderate growth is projected. ACCOUNTING ESTIMATES AND JUDGEMENTS Brands The test for impairment of brands is performed using the relief from royalty method and is based on the expected future cash flows generated from the royalty payments avoided for the individual brand for the next 20 years and projections for subsequent years. The risk-free cash flows are discounted using a discount rate reflecting the risk-free interest rate with the addition of the risk premium associated with the individual brand. Key assumptions The key assumptions on which management bases its cash flow projection include the expected useful life, revenue growth, a theoretical tax amortisation benefit, the royalty rate and the discount rate. Expected useful life Management has assessed that the value of brands with indefinite useful life can be maintained for an indefinite period, as these are well-established brands in their markets, some of which have existed for centuries. The beer industry is characterised as being very stable with consistent consumer demand and a predictable competitive environment, and is expected to be profitable for the foreseeable future. Control of the brands is legally established and is enforceable indefinitely. In management s opinion, the risk of the useful life of these brands becoming finite is minimal because of their individual market positions and because current and planned marketing initiatives are expected to sustain their useful life. Key assumptions 2018 Revenue growth At the time of acquisition of any individual brand, a revenue growth curve is forecast based on a longterm strategic view of the risk and opportunities relevant to the brand. The curve is forecast for a 20- year horizon. This horizon reliably reflects the lengthy process of implementing brand strategies to support a brand occupying its intended place in the Group s portfolio. The forecast period applied is comparable with the common term of the majority of licence agreements to which the Group is party. In the local markets, the product portfolio usually consists of local power brands and international premium brands. When projecting revenue growth for local brands, in addition to its commercial strength such as market share and segment position the forecast takes into consideration the demographics of the primary markets, including expected development in population, consumption levels, generation-shift patterns, rate of urbanisation, beer market maturity, level of premiumisation, circumstances generally limiting the growth opportunities for alcoholic beverages etc. For brands with global or regional presence, enhanced investments in product development and marketing are expected. The expected growth rate for these brands is generally higher than for more localised brands, and is usually highest early in the 20-year period. Depending on the nominal growth expectations for the individual brand, the revenue growth in individual years may be above, equal to or below the forecast inflation level in the markets where the brand is present. Average revenue growth Terminal period growth Pre-tax discount rate Post-tax discount rate Baltika brand 4% 4% 11.1% 9.7% International brands 1% 1% 5.6% 4.4% When preparing budgets, consideration is given to events or circumstances that are relevant in order to reliably project the short-term performance of each brand. Examples include significant campaign activities, changes in excise duties etc., which may have a short-term impact but are non-recurring and quickly absorbed by the business. Since the impact is not material to the long-term projections, it is not taken into consideration when estimating the longterm and terminal period growth rates. Please refer to the description of the impact of increases in excise duties in section 2.2.2, Sales prices. Tax benefit The theoretical tax benefit applied in the test makes use of tax rates and amortisation periods based on current legislation. The impairment test applies tax rates in the range of 15-34% and amortisation periods of 5-10 years. Royalty rate Royalties generated by a brand are based on the Group s total income from the brand and are earned globally, i.e. the income is also earned outside the CGU that owns the brand. If external licence agreements for the brand already exist, the market terms of such agreements are taken into consideration when assessing the royalty rate that the brand is expected to generate in a transaction with independent parties. The royalty rate is based on the actual market position of the individual brand in the global, regional and local markets and assumes a 20-year horizon. This term is common to the beverage industry when licensing brands. For some brands, the share of the total beer market profit exceeds the volume share to an extent that creates significant market entry barriers for competing brands and justifies a higher royalty rate. Royalty rates International, premium and speciality beers % Strong regional and national brands % Local and mainstream brands %

78 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 78 SECTION 2.2 (CONTINUED) IMPAIRMENT Discount rates The discount rate is a weighted average cost of capital (WACC) that reflects the risk-free interest rate with the addition of a risk premium relevant to each brand. The risk-free interest rates used in the impairment tests are based on observed market data. For countries where long-term risk-free interest rates are not observable or valid due to specific national or macroeconomic conditions, the interest rate is estimated based on observations from other markets and/or long-term expectations expressed by international financial institutions considered reliable by the Group. The added credit risk premium (spread) for the riskfree interest rate is fixed at market price or slightly higher, reflecting the expected long-term market price. The aggregate interest rate, including spread, thereby reflects the long-term interest rate applicable to the Group s investments in the individual markets. Interest rates applied in Eastern Europe In recent years, the macroeconomic situation has deteriorated significantly in Eastern Europe, resulting in interest rates and inflation increasing to a level significantly higher than the Group s long-term expectations. The use of expected future interest rates in lieu of appropriate observable interest rates does not impact the conclusion of the impairment test because the relationship between discount rates and growth rates (the real interest rate) is expected to be constant. Expectations for the long-term real interest rate remain a key assumption for the impairment testing in general, and for CGUs with exposure to the Russian market in particular. In recent years, the Bank of Russia has expressed its expectations of a positive future real interest rate at around % in the short term. Due to the current monetary situation in Russia, the short-term interest rate is higher than the long-term interest rate and therefore not directly comparable with the real interest rate applied by the Group. Real interest rates are expected to normalise in the future, with shortterm interest rates falling to a level below the longterm interest rates. The current economic environment in Russia indicates that a stable long-term real interest rate lower than the current level will be reached within a few years. In addition, the latest published expectations from key international financial institutions show an expected long-term real interest rate of 2.5%. Therefore, a real interest rate of 2.5% is maintained as the long-term growth expectation in the impairment test. The impairment test of the Baltika brand is sensitive to changes in the real interest rate. Since no expected future long-term real interest rate can be directly observed, the estimate of a real interest rate is subjective and associated with risk SENSITIVITY TESTS GOODWILL Sensitivity tests have been performed to determine the lowest forecast and terminal period growth rates and/or highest discount rates that can occur in the CGUs, groups of CGUs and brands with indefinite useful life without leading to any impairment loss. The risk-free interest rates observable for Western Europe remained relatively low at the end of The sensitivity tests calculate the impact of higher interest rates and allow for a double-digit percentage-point increase in riskfree interest rates. Due to a challenging macroeconomic situation in some CGUs and groups of CGUs, the Group performed additional sensitivity tests to ensure that a potential impairment was not overlooked. These additional sensitivity tests did not identify any potential impairment. The test for impairment of goodwill did not identify any CGUs or groups of CGUs to which goodwill is allocated where a reasonably possible negative change in a key assumption would cause the carrying amount to exceed the recoverable amount. The goodwill allocated to Eastern Europe was primarily recognised when the Group completed the step acquisition of the remaining 50% of the Baltic Beverage Holding Group from Scottish & Newcastle in However, the impairment test includes 100% of the cash flow generated by Eastern Europe, resulting in the recoverable amount significantly exceeding the carrying amount. BRANDS Following the impairment losses recognised in 2017 and 2016 for the Baltika and Chongqing Brewery Group brands, a reasonably possible negative change in a key assumption would cause the carrying amount to exceed the recoverable amount. The sensitivity to changes in the assumptions is shown in the table. Key assumptions The key assumptions relevant to the assessment of the recoverable amount are: Volume Price Discount rate The assumptions for volume and pricing are closely linked, which, together with the presence of multiple sub-brands in different geographies within each brand, makes individual sensitivity testing on the basis of these two assumptions highly impractical. Instead, sensitivity testing is performed for the overall revenue growth rate, both in the forecast period and the terminal period. The sensitivity test for the maximum decline in growth rate in the forecast period assumes a year-on-year decline in the nominal growth rate, thereby estimating the accumulated effect of a negative change for the full forecast period.

79 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 79 SECTION 2.2 (CONTINUED) IMPAIRMENT The sensitivity tests were completed assuming all other assumptions were unchanged, as it is relevant to assess the sensitivity to, for example, a decline in the growth rate independently of changes in the discount rate. This is because the growth rate in itself might be impacted by changes in brand strategy and other market factors. The sensitivity calculated also assumes a straight-line impact despite the fact that changes in market dynamics and adjustments to these will in practice have different impacts in the individual years and might not apply in the long term. Western European interest rates have been very low for several years and are currently at a level that is below inflation. An increase in the interest rates without a corresponding change in inflation will result in a lower recoverable amount of brands and could potentially lead to impairment. The risk of a significant write-down is considered by management to be very low. Baltika brand The Baltika brand was written down to its recoverable amount at the end of As a result, even a small negative change in the key assumptions could lead to further impairment. At 31 December 2018, the carrying amount of the Baltika brand amounted to DKK 5,585m. Changes in the market dynamics in Russia could have a significant negative impact on the recoverable amount. Macroeconomic recovery could lead to further premiumisation or localisation, which could drive consumers towards international brands or local/regional brands. An increase in the real interest rate from the current 2.5%, either because of a higher interest rate or lower inflation, could significantly reduce the recoverable amount. A 1 percentage point increase in the interest rate would result in a reduction in the recoverable amount of DKK 0.8bn, and a 1 percentage point decrease in the terminal growth rate would result in a reduction in the recoverable amount of DKK 0.3bn. The combined effect of a 1 percentage point negative change in the interest rate, the terminal growth rate and the average growth rate in the forecast period (year-on-year) would result in a reduction in the recoverable amount of DKK 1.5bn. Chongqing Brewery Group brands The Chongqing Brewery Group brands were written down to their recoverable amount in 2016, and the recoverable amount at the end of 2018 remained close to the carrying amount of DKK 895m. As a result, a reasonably possible negative change in the key assumptions would lead to further impairment. The brands are sensitive to developments in the mainstream segment in China, where pressure from premium and upper-mainstream in which the brands are not represented could lead to a further drop in market share and thereby a further reduction of the recoverable amount. Similarly, a change in consumer trends towards the discount segment could have a negative impact on the recoverable amount. A 1 percentage point increase in the interest rate would result in a reduction in the recoverable amount of DKK 0.1bn, and a 1 percentage point decrease in the terminal growth rate would result in a reduction in the recoverable amount of less than DKK 0.1bn. Sensitivity test DKKbn Average forecast growth rate Terminal period growth rate Risk-free interest rate -1 %-point -1 %-point +1 %-point Baltika brand Chongqing Brewery Group brands

80 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 80 SECTION 2.3 INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT DKK million Intangible assets Property, plant and equipment 2018 Goodwill Brands Other intangible assets Total Land and buildings Plant and machinery Other equipment, fixtures and fittings Total Cost Cost at 1 January 52,113 27,243 5,715 85,071 16,746 28,109 13,632 58,487 Acquisition of entities 2, ,047 1, ,482 Additions ,490 1,251 3,900 Disposal of entities Disposals ,007 Transfers Foreign exchange adjustments etc. -1,625-2, , ,076 Cost at 31 December 52,535 25,028 5,683 83,246 17,594 28,960 14,197 60,751 Amortisation, depreciation and impairment losses Amortisation, depreciation and impairment losses at 1 January 1,616 11,553 4,109 17,278 7,472 17,181 9,509 34,162 Disposal of entities Disposals ,690 Amortisation and depreciation ,374 1,684 3,527 Impairment losses Transfers Foreign exchange adjustments etc , , Amortisation, depreciation and impairment losses at 31 December 1,606 10,305 4,467 16,378 7,779 17,447 10,131 35,357 Carrying amount at 31 December 50,929 14,723 1,216 66,868 9,815 11,513 4,066 25,394 Additions from acquisition of entities are described in section 5.2.

81 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 81 SECTION 2.3 (CONTINUED) INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT DKK million Intangible assets Property, plant and equipment 2017 Goodwill Brands Other intangible assets Total Land and buildings Plant and machinery Other equipment, fixtures and fittings Total Cost Cost at 1 January 54,647 28,807 5,758 89,212 17,281 28,285 14,306 59,872 Additions ,166 1,419 3,835 Disposal of entities Disposals ,679-2,147 Transfers Foreign exchange adjustments etc. -2,475-1, , , ,466 Cost at 31 December 52,113 27,243 5,715 85,071 16,746 28,109 13,632 58,487 Amortisation, depreciation and impairment losses Amortisation, depreciation and impairment losses at 1 January 1,783 7,161 3,532 12,476 7,559 16,922 9,581 34,062 Disposal of entities Disposals ,600-1,942 Amortisation and depreciation ,402 1,924 3,816 Impairment losses - 4, , Transfers Foreign exchange adjustments etc ,294 Amortisation, depreciation and impairment losses at 31 December 1,616 11,553 4,109 17,278 7,472 17,181 9,509 34,162 Carrying amount at 31 December 50,497 15,690 1,606 67,793 9,274 10,928 4,123 24,325 Carrying amount of assets pledged as security for borrowings

82 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 82 SECTION 2.3 (CONTINUED) INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment under construction amounted to DKK 2,126m (2017: DKK 1,435m), impacted by the greenfield brewery in Germany and is included in plant and machinery. Other equipment, fixtures and fittings include transport, office and draught beer equipment, coolers and returnable packaging materials. Other intangible assets include software, land use rights and beer delivery rights. SERVICE AGREEMENTS The Group has entered into service contracts of various lengths in respect of sales, logistics and IT. Costs related to the contracts are recognised as the services are received. LEASES Operating lease liabilities totalled DKK 1,021m (2017: DKK 912m), with DKK 326m (2017: DKK 323m) falling due within one year from the reporting date. Operating leases relate to properties and transport equipment and contain no special purchase rights etc. Assets held under finance leases with a carrying amount of DKK 0m (2017: DKK 23m) have been pledged as security for lease liabilities of DKK 0m (2017: DKK 19m). CAPITAL COMMITMENTS The Group has entered into various capital commitments that will not take effect until after the reporting date and have therefore not been recognised in the consolidated financial statements. Capital commitments amounted to DKK 229m (2017: DKK 515m). ACCOUNTING ESTIMATES AND JUDGEMENTS Useful lives and residual value of intangible assets with finite useful life and property, plant and equipment Useful life and residual value are initially assessed both in acquisitions and in business combinations, cf. section 5. The value of the brands acquired and their expected useful life are assessed based on the brands market position and profitability, and expected longterm developments in the relevant markets. Management assesses brands and property, plant and equipment for changes in useful life. If an indication of a reduction in the value or useful life exists, the asset is tested for impairment and is written down if necessary, or the amortisation/ depreciation period is reassessed and if necessary adjusted in line with the asset s changed useful life. Reassessment of the expected future use is made in connection with changes in production structure, restructuring and brewery closures. This may result in the expected future use and residual values not being realised, which requires reassessment of useful life, residual value and recognition of impairment losses or losses on disposal of non-current assets. When changing the amortisation or depreciation period due to a change in the useful life, the effect on amortisation/depreciation is recognised prospectively as a change in accounting estimates. Lease and service agreements Management considers the substance of the service being rendered to classify the agreement as either a lease or a service contract. Particular importance is attached to whether fulfilment of the agreement depends on the use of specific assets. The Group assesses whether contracts are onerous by determining only the direct variable costs and not the costs that relate to the business as a whole. For leases, an assessment is made as to whether the lease is a finance or an operating lease. The Group has entered into operating leases for standardised assets with a short duration relative to the life of the assets, and accordingly the leases are classified as operating leases. Leases are classified as finance leases if they transfer substantially all the risks and rewards incident to ownership to the lessee. All other leases are classified as operating leases. Accounting estimates and judgements related to impairment are described in section 2.2. Amortisation, depreciation and impairment losses Intangible assets Property, plant and equipment DKK million Cost of sales ,633 2,967 Sales and distribution expenses Administrative expenses Special items - 4, Total 537 5,532 3,594 3,863 Gain/loss on disposal of assets DKK million Gain on disposal of property, plant and equipment and intangible assets, including those held for sale, within beverage activities Loss on disposal of property, plant and equipment and intangible assets within beverage activities Total 13 26

83 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 83 SECTION 2.3 (CONTINUED) INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICIES Cost Intangible assets and property, plant and equipment are initially recognised at cost and subsequently measured at cost less accumulated amortisation or depreciation and impairment losses. Cost comprises the purchase price and costs directly attributable to the acquisition until the date when the asset is available for use. The cost of self-constructed assets comprises direct and indirect costs of materials, components, sub-suppliers, wages and salaries, and capitalised borrowing costs on specific or general borrowings attributable to the construction of the asset and is included in plant and machinery. Research and development costs are recognised in the income statement as incurred. Development costs are recognised under other intangible assets if the costs are expected to generate future economic benefits. For assets acquired in business combinations, including brands and property, plant and equipment, cost at initial recognition is determined by estimating the fair value of the individual assets in the purchase price allocation. Goodwill is only acquired in business combinations and is measured in the purchase price allocation. Goodwill is not amortised but is subject to an annual impairment test, cf. section 2.2. Where individual components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Subsequent costs, for example in connection with replacement of components of property, plant and equipment, are recognised in the carrying amount of the asset if it is probable that the costs will result in future economic benefits for the Group. The replaced components are derecognised from the statement of financial position and recognised as an expense in the income statement. Costs incurred for ordinary repairs and maintenance are recognised in the income statement as incurred. Useful life, amortisation, depreciation and impairment losses Useful life and residual value are determined at the acquisition date and reassessed annually. If the residual value exceeds the carrying amount, depreciation is discontinued. Amortisation and depreciation are recognised on a straight-line basis over the expected useful life of the assets, taking into account any residual value. The expected useful life and residual value are determined based on past experience and expectations of the future use of assets. Depreciation is calculated on the basis of the cost less the residual value and impairment losses. Amortisation and depreciation are recognised under cost of sales, sales and distribution expenses, and administrative expenses to the extent that they are included in the cost of self-constructed assets. Impairment Impairment losses of a non-recurring nature are recognised under special items. The expected useful life is as follows: Brands with finite useful life Software Delivery rights Customer agreements/ relationships Buildings Technical installations Brewery equipment Filling and bottling equipment Normally 20 years Technical installations in warehouses On-trade and distribution equipment Fixtures and fittings, other plant and equipment Returnable packaging materials Hardware Land Normally 3-5 years. Group-wide systems developed as an integrated part of a major business development programme: 5-7 years Depending on contract; if no contract term has been agreed, normally not exceeding 5 years Depending on contract with the customer; if no contract exists, normally not exceeding 20 years years 15 years 15 years 8-15 years 8 years 5 years 5-8 years 3-10 years 3-5 years Not depreciated Operating leases Operating lease payments are recognised in the income statement on a straight-line basis over the lease term. Government grants and other funding Grants and funding received for the acquisition of assets and development projects are recognised in the statement of financial position by deducting the grant from the carrying amount of the asset. The grant is recognised in the income statement over the life of the asset as a reduced depreciation charge.

84 SECTION 3 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 84 SPECIAL ITEMS AND PROVISIONS 303m SPECIAL ITEMS, INCOME (DKK) Impacted by gains on disposal of entities in China, gain on sale of assets that were part of a restructuring in prior years and reversal of impairment losses in Eastern Europe. -391m SPECIAL ITEMS, EXPENSES (DKK) Primarily impacted by restructurings in Western Europe. SECTION 3.1 SPECIAL ITEMS SPECIAL ITEMS, INCOME In 2018, the Group recognised gains on disposal of two minor entities in China, cf. section 5.2. In 2018, the Group completed a disposal of land and buildings in Russia impaired in 2010 and a sale of assets that were part of a Special items restructuring project in prior years in the UK, and also reversed provisions made for projects in prior years. SPECIAL ITEMS, EXPENSES Special items, expenses consist of impairment losses on returnable steel kegs and filling lines due to the roll-out of the DraughtMaster TM one-way keg system and of restructuring projects across Western Europe. The restructuring projects are the result of the continued focus on cost and efficiency DKK million Special items, income Gain on disposal of entities, cf. section Disposal of property, plant and equipment previously impaired, including adjustments to gains and reversal of provisions made in prior years Reversal of impairment losses, cf. section Revaluation gain on step acquisition of entities, cf. section Total initiatives, primarily in Kronenbourg, Carlsberg Sverige, Ringnes, certain local supply companies as well as in Asia. The restructuring projects include changes in sales and distribution operations and related organisational changes, including termination of employees. These projects typically run over several years was impacted by a write-down of the Baltika brand, cf. section 2.2. Restructurings and impairment of property plant and equipment DKK million Restructuring in Western Europe Impairment losses in Western Europe, cf. section Restructuring in Asia Other Total Special items, expenses Impairment of brands, cf. section ,847 Restructurings and impairment of property, plant and equipment Loss on disposal of entities, cf. section Costs related to acquisition of entities -9 - Total ,207 Special items, net -88-4,565

85 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 85 SECTION 3.1 (CONTINUED) SPECIAL ITEMS ACCOUNTING ESTIMATES AND JUDGEMENTS The use of special items entails management judgement in the separation from ordinary items. Management carefully considers individual items and projects (including restructurings) in order to ensure the correct distinction and split between operating activities and significant income and expenses of a special nature. Management initially assesses the entire restructuring project and recognises all present costs of the project, but the project is also assessed on an ongoing basis with additional costs possibly being incurred during the lifetime of the project. Management reassesses the useful life and residual value of non-current assets used in an entity undergoing restructuring. The extent and amount of onerous contracts as well as employee and other obligations arising in connection with a restructuring are also estimated. ACCOUNTING POLICIES Special items include significant income and expenses of a special nature in terms of the Group s revenuegenerating activities that cannot be attributed directly to the Group s ordinary operating activities. Special items also include significant non-recurring items, including termination benefits related to retirement of members of the Executive Committee, impairment of goodwill and brands, gains and losses on the disposal of activities and associates, revaluation of the shareholding in an entity held immediately before a step acquisition of that entity, and transaction costs in a business combination. Significant restructuring of processes and structural adjustments are included in special items. Special items are shown separately from the Group s ordinary operations to facilitate a better understanding of the Group s financial performance. SECTION 3.2 PROVISIONS Restructuring provisions relate to termination benefits to employees made redundant, primarily as a result of a restructuring project accounted for as special items. In 2018, restructuring provisions of DKK 381m related primarily to Kronenbourg, Carlsberg Sverige, Ringnes and certain local supply companies, as described in section 3.1. Other provisions of DKK 4,138m related primarily to profit sharing in France, employee obligations other than retirement benefits, and ongoing disputes, lawsuits etc. Provisions ACCOUNTING ESTIMATES AND JUDGEMENTS In connection with restructurings, management assesses the timing of the costs to be incurred, which influences the classification as current or non-current liabilities. Provision for losses on onerous contracts is based on agreed terms with the other party and expected fulfilment of the contract based on the current estimate of volumes, use of raw materials etc. Management assesses provisions, contingent assets and liabilities and the likely outcome of pending or probable lawsuits etc. on an ongoing basis. The outcome depends on future events, which are by nature uncertain. In assessing the likely outcome of lawsuits and tax disputes etc., management bases its assessment on external legal advice and established precedents. Impact of special items on operating profit DKK million If special items had been recognised in operating profit before special items, they would have been included in the following line items: Cost of sales ,494 Sales and distribution expenses Administrative expenses Other operating income Other operating expenses Special items, net -88-4,565 DKK million Restructurings Onerous contracts Other Total Provisions at 1 January ,258 4,202 Acquisition of entities Additional provisions recognised Used during the year Reversal of unused provisions Transfers Discounting Foreign exchange adjustments etc Provisions at 31 December ,138 4,927 Recognised in the statement of financial position Non-current provisions ,270 3,827 Current provisions ,100 Total ,138 4,927

86 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 86 SECTION 3.2 (CONTINUED) PROVISIONS ACCOUNTING POLICIES Provisions, including profit-sharing provisions, are recognised when, as a result of events arising before or at the reporting date, the Group has a legal or a constructive obligation and it is probable that there may be an outflow of economic benefits to settle the obligation. Provisions are discounted if the effect is material to the measurement of the liability. The Group s average borrowing rate is used as the discount rate. Restructuring costs are recognised when a detailed, formal restructuring plan has been announced to those affected no later than at the reporting date. On acquisition of entities, restructuring provisions in the acquiree are only included in the opening balance when the acquiree has a restructuring liability at the acquisition date. A provision for onerous contracts is recognised when the benefits expected to be derived by the Group from a contract are lower than the unavoidable costs of meeting its obligations under the contract. SECTION 3.3 CONTINGENT LIABILITIES The Group operates in very competitive markets where consolidation is taking place within the industry and among our customers and suppliers, all of which in different ways influences our business. In the ordinary course of business, the Group is party to certain lawsuits, disputes etc. of various scopes, some of which are referred to below. The resolution of these lawsuits, disputes etc. is associated with uncertainty, as they depend on legal proceedings, such as negotiations between the parties affected, governmental actions and court rulings. In 2014, the Federal Cartel Office in Germany issued a decision and imposed a fine of EUR 62m for alleged infringement of the competition rules in Management does not agree with the conclusions or findings of the Federal Cartel Office and, accordingly, Carlsberg Deutschland has appealed the decision to the relevant German court. In 2018, the Group s associate in Portugal received a statement of objections from the local authorities, which was the next step following a previously conducted dawn raid. At 31 December 2018, no final rulings had been made in any of the entities that have experienced dawn raids in recent years. However, there is still a significant risk related to these cases due to the inherent uncertainty. Management and the general counsel continuously assess these risks and their likely outcome. It is the opinion of management and the general counsel that, apart from items recognised in the statement of financial position, the outcome of these lawsuits, disputes etc. cannot be reliably estimated in terms of amount or timing. The Group does not expect the ongoing lawsuits and disputes to have a material impact on the Group s financial position, net profit or cash flow. GUARANTEES AND COMMITMENTS The Group has issued guarantees for loans etc. raised by third parties (non-consolidated entities) of DKK 511m (2017: DKK 475m). Guarantees issued for loans raised by associates and joint ventures are described in section 5.4. Certain guarantees etc. are issued in connection with disposal of entities and activities. Apart from items recognised in the statement of financial position or disclosed in the consolidated financial statements, these guarantees etc. will not have a material effect on the Group s financial position. Furthermore, a dawn raid was conducted in the Group s subsidiary in India in 2018 with investigations still ongoing. Capital commitments, lease liabilities and service agreements are described in section 2.3.

87 SECTION 4 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 87 FINANCING COSTS, CAPITAL STRUCTURE AND EQUITY -722m NET FINANCIAL ITEMS (DKK) Financial items, net, amounted to DKK -722m against DKK -788m in Excluding currency gains and fair value adjustments, financial items, net, amounted to DKK -758m (2017: DKK -980m), positively impacted by the lower net interest-bearing debt. Leverage ratio (NIBD/EBITDA) bn NET INTEREST-BEARING DEBT (DKK) At 31 December 2018, gross financial debt amounted to DKK 24.0bn (2017: DKK 24.2bn). Net interest-bearing debt was DKK 17.3bn, a reduction of DKK 2.3bn versus year-end 2017 despite the higher dividend payout and the acquisitions made in the year. Changes in net interest-bearing debt (DKKm) 19,638-12,047 3,426 2,820 The difference of DKK 6.7bn between gross financial debt and net interest-bearing debt mainly comprised cash and cash equivalents of DKK 5.6bn. The leverage ratio, measured as net interestbearing debt to operating profit before depreciation, amortisation and impairment losses, was 1.29x (1.45x at year-end 2017). Long-term and short-term borrowings amounted to DKK 24.0bn at 31 December 2018 (2017: DKK 24.2bn). Long-term borrowings totalled DKK 16.8bn (2017: DKK 23.3bn) and short-term borrowings totalled 3, ,313 DKK 7.2bn (2017: DKK 0.8bn). The shift between long-term and short-term borrowings was mainly due to the EUR 750m bond maturing on 3 July Current liabilities excluding short-term borrowings increased by DKK 3.0bn to DKK 27.2bn. The increase was mainly due to an increase of DKK 2.7bn in trade payables. The increase in trade payables was due to increased volumes and focused cash discipline combined with the acquisition of Cambrew. 47.9bn EQUITY (DKK) Equity amounted to DKK 47.9bn at 31 December 2018 (2017: DKK 49.5bn), of which DKK 45.3bn was attributable to shareholders in Carlsberg A/S and DKK 2.6bn to noncontrolling interests. The change in equity of DKK 1.6bn was mainly the result of the consolidated profit of DKK 6.1bn being offset by the foreign exchange loss of DKK 2.8bn and the dividend payout of DKK 3.3bn.

88 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 88 SECTION 4.1 FINANCIAL INCOME AND EXPENSES SECTION 4.2 NET INTEREST- BEARING DEBT Financial items recognised in the income statement DKK million Financial income Interest income Foreign exchange gains, net Interest on plan assets, defined benefit plans Other Total Financial expenses Interest expenses Capitalised financial expenses 10 4 Interest cost on obligations, defined benefit plans Other Total -1,080-1,299 Financial items, net, recognised in the income statement Financial items recognised in other comprehensive income DKK million Foreign exchange adjustments of foreign entities Foreign currency translation of foreign entities -2,685-3,785 Recycling of cumulative translation differences of entities acquired in step acquisitions or disposed of Total -2,754-3,842 Fair value adjustments of hedging instruments Change in fair value of effective portion of cash flow hedges Change in fair value of cash flow hedges transferred to the income statement Change in fair value of net investment hedges Total Financial items, net, recognised in other comprehensive income -3,394-4,147 Interest income relates to interest on cash and cash equivalents measured at amortised cost. Foreign exchange gains, net, include fair value adjustments of fair value hedges and hedges not designated as hedging instruments of DKK -54m (2017: DKK -292m), cf. section 4.8. Of the net change in fair value of cash flow hedges transferred to the income statement, DKK -87m (2017: DKK -146m) is included in net revenue and cost of sales and DKK 10m (2017: DKK 4m) is included in financial items. Financial items, net (DKKbn) Of the gross financial debt at year-end, 70% (2017: 96%) was long term, i.e. with maturity of more than one year. Of the net financial debt, 96% was denominated in EUR and DKK (after swaps), and 91% of the net financial debt was at fixed interest (fixed-interest period exceeding one year). The interest rate risk is measured by the duration of the net financial debt, for which our target is between two and five years. At 31 December 2018, the duration was 4.2 years (2017: 4.6 years). Net interest-bearing debt DKK million Non-current borrowings 16,750 23,340 Current borrowings 7, Gross financial debt 23,983 24,189 Cash and cash equivalents -5,589-3,462 Net financial debt 18,394 20,727 Loans to associates, interest-bearing portion On-trade loans, net Other receivables, net Net interest-bearing debt 17,313 19,638

89 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 89 SECTION 4.3 CAPITAL STRUCTURE CAPITAL STRUCTURE Management regularly assesses whether the Group s capital structure is in the interests of the Group and its shareholders. The overall objective is to ensure a continued development and strengthening of the Group s capital structure that supports long-term profitable growth and a solid increase in key earnings and ratios. This includes assessment of and decisions on the split of financing between share capital and borrowings, which is a long-term strategic decision to be made in connection with significant investments and other transactions. Carlsberg A/S share capital is divided into two classes (A shares and B shares). Combined with the Carlsberg Foundation s position as majority shareholder (in terms of control), management considers that this division will remain advantageous for all of the shareholders, as this structure enables and supports the long-term development of the Group. The Group targets a leverage ratio below 2.0x. The leverage ratio is measured as net interestbearing debt to operating profit before depreciation, amortisation and impairment losses. At the end of 2018, the leverage ratio was 1.29x (2017: 1.45x) and, in light of the reduced financial leverage, the intention is to increase the payout to shareholders. The Group uses share buy-back programmes to return excess cash to shareholders. The size of any share buy-back programmes will depend on the expected organic and inorganic investments needed to grow the business and the Group s intention to maintain net interest-bearing debt to operating profit before depreciation, amortisation and impairment losses below 2.0x. The Group is rated by Moody s Investors Service and Fitch Ratings. As an element in strategic decisions on capital structure, management assesses the risk of changes in the Group s investment-grade rating. Identification and monitoring of risks that could change the rating were carried out on an ongoing basis throughout the year EQUITY DIVIDENDS The Group proposes a dividend of DKK per share (2017: DKK per share), amounting to DKK 2,746m (2017: DKK 2,441m). The proposed dividend has been included in retained earnings at 31 December Dividends paid out in 2018 for 2017, net of dividends on treasury shares, amounted to DKK 2,439m (paid out in 2017 for 2016: DKK 1,525m). Dividends paid out to shareholders of Carlsberg A/S do not impact taxable income in Carlsberg A/S. Dividends paid to non-controlling interests primarily related to entities in Asia. At 31 December 2018, dividends of DKK 38m were payable to non-controlling interests. SHARE BUY-BACK AND TREASURY SHARES During the 12-month period from 6 February 2019, the Group intends to buy back shares worth up to DKK 4.5bn. The share buy-back programme will be split into two tranches of approximately six months each and will be executed in accordance with Article 5 of Regulation No 596/2014 of the European Parliament and Council of 16 April 2014 (MAR) and the Commission Delegated Regulation (EU) 2016/1052, also referred to as the Safe Harbour Regulation. The first tranche is a share buy-back programme worth up to DKK 2.5bn, with a maximum of 15 million shares. The Company is entitled to suspend or stop the programme at any time. According to the authorisation of the Annual General Meeting, the Supervisory Board may, in the period until 13 March 2023, allow the Company to acquire treasury shares up to a total holding of 10% of the nominal share Equity (DKKm) 49,525 6,133-2, ,308 capital at a price quoted on Nasdaq Copenhagen at the time of acquisition with a deviation of up to 10%. The permitted holding of treasury shares covers those acquired in share buy-back programmes. The Company holds no class A shares. Transactions with shareholders in Carlsberg A/S DKK million Dividends paid to shareholders -2,439-1,525 Acquisition of treasury shares Disposal of treasury shares Total -2,489-1,681 Transactions with non-controlling interests DKK million Dividends paid to NCI Acquisition of NCI Total -1, , ,889

90 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 90 SECTION 4.3 (CONTINUED) CAPITAL STRUCTURE Share capital Shares of DKK 20 Class A shares Class B shares Total share capital Nominal value, DKK 000 Shares of DKK 20 Nominal value, DKK 000 Shares of DKK 20 Nominal value, DKK January ,699, , ,857,554 2,377, ,556,806 3,051,136 No change in December ,699, , ,857,554 2,377, ,556,806 3,051,136 No change in December ,699, , ,857,554 2,377, ,556,806 3,051,136 A shares carry 20 votes per DKK 20 share. B shares carry two votes per DKK 20 share. A preferential right to an 8% non-cumulative dividend is attached to B shares. Apart from votes and dividends, all shares rank equally. ACCOUNTING POLICIES Proposed dividends The proposed dividend is recognised as a liability at the date when it is adopted at the Annual General Meeting (declaration date). The dividend recommended by the Supervisory Board, and therefore expected to be paid for the year, is disclosed in the statement of changes in equity. Treasury shares Cost of acquisition, consideration received and dividends received from treasury shares are recognised directly in equity as retained earnings. Capital reductions from the cancellation of treasury shares are deducted from the share capital at an amount corresponding to the nominal value of the shares and added to retained earnings. Proceeds from the sale of treasury shares in connection with the settlement of share-based payments are recognised directly in equity FINANCIAL RISK MANAGEMENT The Group s activities give rise to exposure to a variety of financial risks, including market risk (foreign exchange risk, interest rate risk and raw material risk), credit risk and liquidity risk. These risks are described in the following sections: Foreign exchange risk: sections 1.3 and 4.6 Interest rate risk: section 4.5 Commodity risk: section Credit risk: sections and Liquidity risk: section 4.7 The Group s financial risks are managed by Group Treasury in accordance with the Financial Risk Management Policy approved by the Supervisory Board and are an integrated part of the overall risk management process. The risk management governance structure is described in the Management review. Treasury shares Fair value, DKKm Shares of DKK 20 Nominal value, DKKm Percentage of share capital 1 January , % Acquisition of treasury shares 376, % Used to settle share-based payments -214, % 31 December , % Acquisition of treasury shares 173, % Used to settle share-based payments -240, % 31 December , % To facilitate settlement of share-based incentive programmes in 2018, the Company acquired class B treasury shares at an average price of DKK 740 (2017: DKK 706). To reduce the exposure to these risks, the Group enters into a variety of financial instruments and generally seeks to apply hedge accounting to reduce volatility in the income statement. Debt instruments and deposits in foreign currency reduce the overall risk, but do not achieve the objective of reducing volatility in specific items in the income statement.

91 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 91 SECTION 4.4 BORROWINGS AND CASH BORROWINGS Borrowings decreased slightly in In addition, the distribution between current and non-current debt changed, as a EUR 750m bond matures in July 2019 and the certificates arising as a consequence of the prepayment received regarding the disposal of the Hamburg site mature in November Both items were reported as non-current in Gross financial debt DKK million Non-current Issued bonds 16,697 22,215 Bank borrowings Other borrowings 18 1,104 Total 16,750 23,340 Current Issued bonds 5,602 - Current portion of other non-current borrowings - 36 Bank borrowings Other borrowings 1, Total 7, Total borrowings 23,983 24,189 Fair value 25,248 25,840 Changes in gross financial debt DKK million Gross financial debt at 1 January 24,189 30,204 Proceeds from issue of bonds - 3,684 Repayment of bonds - -7,444 Instalments on and proceeds from borrowings, long-term -38-1,157 Repayment of mortgage Instalments on and proceeds from borrowings, short-term Other External financing ,239 Change in bank overdrafts Other, including foreign exchange adjustments and amortisation Gross financial debt at 31 December 23,983 24,189 ACCOUNTING POLICIES Borrowings are initially recognised at fair value less transaction costs and subsequently measured at amortised cost using the effective interest method. Accordingly, the difference between the fair value less transaction costs and the nominal value is recognised under financial expenses over the term of the loan CASH Cash and cash equivalents include short-term marketable securities with a term of three months or less at the acquisition date that are subject to an insignificant risk of changes in value. Short-term bank deposits amounted to DKK 252m (2017: DKK 578m). The average interest rate on these deposits was 6% (2017: 6.3%). Cash and cash equivalents DKK million Cash and cash equivalents 5,589 3,462 Bank overdrafts Cash and cash equivalents, net 5,434 3,120 ASSESSMENT OF CREDIT RISK The Group is exposed to credit risk on cash and cash equivalents (including fixed deposits), investments and derivative financial instruments with a positive fair value due to uncertainty as to whether the counterparty will be able to meet its contractual obligations as they fall due. The Group has established a credit policy under which financial transactions may be entered into only with financial institutions with a solid credit rating. The credit exposure on financial institutions is managed by Group Treasury. The Group primarily enters into financial instruments and transactions with the Group s relationship banks, i.e. banks extending loans to the Group. Group Treasury monitors the Group s gross credit exposure to banks and operates with individual limits on banks based on rating and access to netting of assets and liabilities. EXPOSURE TO CREDIT RISK The carrying amount of DKK 5,589m (2017: DKK 3,462m) represents the maximum credit exposure related to cash and cash equivalents. Of this amount, DKK 2,760m (2017: DKK 2,131m) is cash in Asia. The credit risk on receivables is described in section An overview of issued bonds (current and non-current) is provided in section 4.5.

92 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 92 SECTION 4.5 INTEREST RATE RISK The Group s exposure to interest rate risk is considered limited. At the reporting date, 91% of the net financial debt consisted of fixed-rate borrowings with interest rates fixed for more than one year (2017: 113%). As 89% of the Group s net debt is in EUR, the interest rate exposure primarily relates to the development in the interest rates for EUR. Net financial debt by currency The interest rate risk is measured by the duration of the net financial debt. The target is to have a duration between two and five years. At 31 December 2018, the duration was 4.2 years (2017: 4.6). Interest rate risks are mainly managed using fixed-rate bonds. The EUR 750m bond maturing on 3 July 2019 consists of two bond issues of EUR 250m and EUR 500m. SENSITIVITY ANALYSIS It is estimated that a 1 percentage point interest rate increase would lead to an increase in interest expenses of DKK 16m (2017: decrease of DKK 27m). The analysis assumes a parallel shift in the relevant yield curves. If the market interest rate had been 1 percentage point higher at the reporting date, it would have led to a financial gain of DKK 766m (2017: DKK 962m), and a similar loss had the interest rate been 1 percentage point lower. However, since all fixed-rate borrowings are measured at amortised cost, there is no impact on other comprehensive income or the income statement. The sensitivity analysis is based on the financial instruments recognised at the reporting date. The sensitivity analysis assumes a parallel shift in interest rates and that all other variables remain constant, in particular foreign exchange rates and interest rate differentials between the different currencies. The analysis was performed on the same basis as for The Group did not enter into any new interest rate swaps in DKK million 2018 Interest rate Net financial debt Floating¹ Fixed¹ Floating² % Fixed² % EUR 16, ,775 24% 76% DKK 1,279 1, % - PLN % - USD % - CHF % - RUB % - Other % - Total 18,394 1,619 16,775 9% 91% 2017 EUR 17,591-5,790 23,381 0% 100% DKK 1,758 1, % - PLN % - USD 1,606 1, % - CHF % - RUB -1,418-1, % - Other % - Total 20,727-2,654 23,381-13% 113% Interest rate risk DKK million 2018 Issued bonds Interest rate Average effective interest rate Fixed for Carrying amount Interest rate risk EUR 750m maturing 3 July 2019 Fixed 2.6% 0-1 year 5,602 Fair value EUR 750m maturing 15 November 2022 Fixed 2.7% 3-4 years 5,580 Fair value EUR 500m maturing 6 September 2023 Fixed 0.7% 4-5 years 3,705 Fair value EUR 1,000m maturing 28 May 2024 Fixed 2.6% >5 years 7,412 Fair value Total issued bonds 2.3% 22,299 Total issued bonds % 22,215 Bank borrowings and other borrowings Floating-rate Floating 1.5% <1 year 1,632 Cash flow Fixed-rate Fixed 1.9% >1 year 52 Fair value Total bank borrowings and other borrowings 1,684 Total bank borrowings and other borrowings ,974 ¹ Net financial debt consists of current and non-current items after currency derivatives less cash and cash equivalents. ² Net financial debt consists of current and non-current items less cash and cash equivalents.

93 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 93 SECTION 4.6 FOREIGN EXCHANGE RISK RELATED TO NET INVESTMENTS AND FINANCING ACTIVITIES CURRENCY PROFILE OF BORROWINGS The Group is exposed to foreign exchange risk on borrowings denominated in a currency other than the functional currency of the local entities reporting the debt, as well as the risk that arises when net cash inflow is generated in one currency and loans are denominated and have to be repaid in another currency HEDGING OF NET INVESTMENTS IN FOREIGN SUBSIDIARIES The Group holds a number of investments in foreign subsidiaries where the translation of net assets to DKK is exposed to foreign exchange risks. The Group hedges part of this foreign exchange exposure by entering into forward exchange contracts (net investment hedges). This mainly applies to net investments in CHF, CNY, MYR, NOK and PLN. The basis for hedging is reviewed at least once a year, and the two parameters, risk reduction and cost, are balanced. In economic terms, having debt in foreign currency or creating synthetic debt via forward exchange contracts constitutes hedging of the DKK value of future cash flows arising from operating activities or specific transactions. The most significant net risk relates to foreign exchange adjustment of net investments in RUB. Where the fair value adjustments of forward exchange contracts do not exceed the fair value adjustments of the investment, the adjustments of the financial instruments are recognised in other comprehensive income. At 31 December 2018, all adjustments of financial instruments were recognised in other comprehensive income. Fair value adjustments of loans designated as strategic intra-group loans are also recognised in other comprehensive income. The fair value of derivatives used as net investment hedges recognised at 31 December 2018 amounted to DKK -75m (2017: DKK 84m). The closing balance in the equity reserve for currency translation for hedges for which hedge accounting is no longer applied amounted to DKK -1,382m (2017: DKK -1,378m). Positive fair values of derivatives are recognised as other receivables and negative values as other liabilities EXCHANGE RATE RISK ON CASH AND BORROWINGS The main principle for funding of subsidiaries is that cash, loans and borrowings should be in local currency or hedged to local currency to avoid foreign exchange risk. However, in some Group entities net debt is denominated in a currency other than the functional currency of the local entity without the foreign exchange risk being hedged. This applies primarily to a few entities in Eastern Europe that hold cash and loans in EUR and USD and in this way obtain proxy hedging of the foreign exchange risk associated with the purchase of goods in foreign currency in these markets. Currency profile of borrowings Before and after derivative financial instruments DKK million 2018 Original principal Effect of swap After swap CHF DKK - 1,300 1,300 EUR 23,710-5,630 18,080 RUB USD - 1,501 1,501 Other 251 1,774 2,025 Total 23,983-23,983 Total ,189-24,189 Net investment hedges Hedging of investment, amount in local currency Intra-group loans, amount in local currency Other comprehensive income (DKK) Average hedged rate Fair value of derivatives Fair value of derivatives DKK million Asset Liability Asset liability RUB CNY -1,250-1, MYR HKD , CHF GBP NOK -1,300-1,300 3,000 3, SEK - - 5,495 8, PLN SGD Other Total

94 CARLSBERG GROUP ANNUAL REPORT 2018 CONSOLIDATED FINANCIAL STATEMENTS 94 SECTION 4.6 (CONTINUED) FOREIGN EXCHANGE RISK RELATED TO NET INVESTMENTS AND FINANCING ACTIVITIES IMPACT ON FINANCIAL STATEMENTS AND SENSITIVITY ANALYSIS IMPACT ON INCOME STATEMENT For the impact of currency on operating profit and financial items, please refer to sections 1.3 and 4.1 respectively. Income statement The hypothetical impact ignores the fact that the subsidiaries initial recognition of revenue, cost and debt would be similarly exposed to the exchange rate developments. Other comprehensive income Other comprehensive income is affected by changes in the fair value of currency derivatives designated as cash flow hedges of future purchases and sales. Exchange rate sensitivity - other comprehensive income DKK million Average hedged rate Notional amount % change Effect on OCI Average hedged rate Effect on OCI NOK/DKK % SEK/DKK % PLN/DKK % CHF/DKK % RUB/DKK % GBP/DKK % Other % 3-8 Total IMPACT ON STATEMENT OF FINANCIAL POSITION Fluctuations in foreign exchange rates will affect the level of debt, as funding is obtained in a number of currencies. In 2018, net interest-bearing debt increased by DKK 142m (2017: increased by DKK 360m) due to changes in foreign exchange rates. SENSITIVITY ANALYSIS An adverse development in the exchange rates would, all other things being unchanged, have had the hypothetical impact on the consolidated income statement and other comprehensive income for 2018 illustrated in the tables. The calculations are made on the basis of items in the statement of financial position at 31 December Exchange rate sensitivity - income statement DKK million EUR receivable EUR payable EUR cash Gross exposure Exposure, net of hedging EUR/GBP 1, % 7 33 EUR/NOK % EUR/PLN % 5 3 EUR/KZT % EUR/RUB % EUR/SEK % 5-6 EUR/CHF % -2-4 Total USD receivable USD payable USD cash Gross exposure Exposure, net of hedging USD/RUB % USD/UAH % Total % change % change Effect on P/L Effect on P/L Effect on P/L 2017 Effect on P/L